Question

2. The income effect of a price change suggests that:

a	as income increases, a consumer will purchase fewer normal goods and more inferior goods.

b)	if the price of a good increases, consumers will be able to purchase more of other goods because of the increase in the purchasing power of income.

c)	if the price of a good goes down, it will increase a consumer's purchasing power.

d)

consumer demand will decrease if the income tax is increased.

3.

Utility measurement is:

a)

concrete.

b)	statistically derived.

c)	hypothetical.

d)

based on the metric system.

9. Indifference curves exhibit all of the following characteristics except:

a)	being concave to the origin.

b)	having negative slopes.

c)	representing bundles with the same level of utility.

d)	not intersecting.

Answer 1

1) Solution: if the price of a good goes down, it will increase a consumer's purchasing power.

Explanation: The income effect suggests that, as the price of a good gpes down, real income - that is, what consumers can buy with their money income increases

2) Solution: hypothetical

Explanation: A hypothetical unit of measurement of utility is often applied by economists for presenting the hypothetical information about utility

3) Solution: being concave to the origin

Explanation: Indifference curves are convex to the origin because when consumer begins to increase the use of one good over another, the curve indicates the marginal rate of substitution