Question

Determine if the following statements A-E are true or false.

A. If preferences over goods x and y are represented by U(x,y) = 3x^1/2y^1/3, the price consumption curve (as the price of x changes) is necessarily horizontal.

B. If U(x,y)= 3 + ln(x) + 5y, the income consumption curve is vertical, assuming an interior solution.

C. An upward sloping price consumption curve (as the price of good x changes) indicates that goods x and y are complements in consumption.

D. If the price consumption curve (as the price of good x changes) is vertical, the price elasticity of demand for good x is zero.

E. If the income consumption curve is vertical, the Engel curve for good y is upward sloping.

Answer 1

C. An upward sloping price consumption curve (as the price of good x changes) indicates that goods x and y are complements in consumption.

Correct Answer:- True

Reason:- Upward-sloping price consumption curve for X means that when the price of good X falls, the quantity demanded of both goods X and Y rises.

D. If the price consumption curve (as the price of good x changes) is vertical, the price elasticity of demand for good x is zero.

Correct Answer:- True

Reason:- If the price consumption curve is vertical when the price of x changes, then the demand for x is perfectly inelastic.

E:- If the income consumption curve is vertical, the Engel curve for good y is upward sloping.

Correct Answer:- True