Question

when goods are perfect complements, a change in price leads to an income effect equal to the overall effect. When goods are perfect substitutes, a change in price leads to a substitution effect equal to the overall effect. Explain.

Answer #1

8. It is likely that there will be a corner point solution
when
a) two goods are perfect substitutes and the marginal rate of
substitution is equal in magnitude to
the slope of the budget constraint.
b) an indifference curve is tangent to the budget
constraint.
c) two goods are perfect complements and the marginal rate of
substitution is not equal in
magnitude to the slope of the budget constraint.
d) two goods are perfect substitutes and the marginal rate...

True or False: If pizza and calzones are substitutes, then the
substitution effect of a price change will be in a different
direction than if pizza and calzones are complements. Explain,
using a diagram.

when the price of an inferior good falls, the substitution
effect leads to.................. in the quantity purchased, and
the income effect leads to......................... in the quantity
purchased.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
which one is the right answer?? and why? GIVE EXAMPLE PLEASE

Indifference curves for goods x and y can be right angles
under
A. Perfect substitutes
B. Perfect complements
C. diminishing marginal rate of substitution
D. rising opportunity costs

Consider a consumer whose utility function is
u(x, y) = x + y (perfect substitutes)
a. Assume the consumer has income $120 and initially faces the
prices px = $1 and py = $2. How much x and y would they buy?
b. Next, suppose the price of x were to increase to $4. How
much would they buy now?
c. Decompose the total effect of the price change on demand
for x into the substitution effect and the...

Paul considers goods 1 and 2 as perfect complements: ?(?1, ?2 )
= ???{?1, ?2 }. At the moment Paul is optimally consuming the
bundle (?1 = 10, ?2 = 10). Suppose that prices change, so that (?1
= 6, ?2 = 8). What is the minimal amount of income Paul would need
to maintain the same utility level after the price change?
a. ? = 100;
b. ? = 80;
c. ? = 140;
d. ? = 180;

If the cross-price elasticity for two goods is equal to
−4, then
A) the goods are normal goods.
B) the goods are inferior goods.
C) the goods are substitutes.
D) the goods are complements.
If the supply curve for housing is perfectly inelastic,
a decrease in demand will cause the equilibrium price
to:
A) rise and the equilibrium quantity to fall.
B) rise and the equilibrium quantity to stay the same.
C) fall and the equilibrium quantity to fall.
D)...

Maude thinks delphiniums and hollyhocks are perfect substitutes,
one for one. If delphiniums currently cost $5 per unit and
hollyhocks cost $6 per unit and if the price of delphiniums rises
to $8 per unit,
a. the income effect of the change in demand for delphiniums
will be bigger than the substitution effect.
b. there will be no change in the demand for hollyhocks.
c. the entire change in demand for delphiniums will be due to
the substitution effect.
d....

Are hamburgers and buns complements or substitutes? What then is
the relationship between the change in the consumption of each good
in terms of the price change of the other (that is, how does
x1 change as p2changes, and
vice versa)? Explain.

Please answer if the following questions are True or False:
Perfect compliments will have cross elasticities equal to
-1.
A Giffen goods is an inferior goods whose negative income effect
outweighs the positive substitution effect when the price of the
goods decreases.
Intersecting indifference curves violates the completeness
assumption of rational choice.

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