Question

1. If the price of good C decreases by 2% and the quantity demanded of good D decreases by 8%, what is the cross price elasticity of demand.  Are the two goods substitutes or complements?  Why?
2. If the price of good A decreases by 1.3% and the price elasticity of demand is 1.5, find the percentage change in quantity demanded and the percentage change in revenue.  If you want to increase revenue should you increase or decrease the price in this case?

Part B

1. Jane has $500 a week to spend on food and clothing.  The price of food is $10 and the price of clothing is $25.  Which of the following pairs of food and clothing can she afford?

A 20 units of clothing and 50 units of food.

B 50 units of clothing and 50 units of food.

C10 units of clothing and 25 units of food.

D 0 units of clothing and 500 units of food.

1. Marginal utility is the

1. total satisfaction gained by consuming all units of a good.
2. total satisfaction gained by consuming the last unit of the good.
3. additional satisfaction gained by the consumption of one more unit of a good.
4. additional consumption divided the additional satisfaction gained by the additional consumption.

1. The law of diminishing marginal utility
2. refers to the decrease in total satisfaction as more units of the good are consumed.
3. refers to the fall in additional satisfaction created by consumption of more and more units of a good.
4. refers to the idea that total utility is negative.
5. all of the above.
6. Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn’t taste as good as the previous one.  This suggests that for Kathy
7. the marginal utility of a slice of pizza is positive but decreasing.
8. the marginal utility of a slice of pizza is negative.
9. the total utility of slices of pizza is declining.
10. the total utility of slices of pizza is increasing by larger and larger increments.
11. Richard is consuming X and Y so that MUX/PX = 8 and MUY/PY = 4.  To maximize utility, Richard should
12. continue to consume the same amount of X and Y since the consumer is already maximizing utility.
13. consume less of both X and Y.
14. consume more X and less Y.
15. consume less X and more Y.

Answer 1

Answer 1 : Cross price elasticity of demand =

% Change in quantity demanded of Good D / % Change in price of Good C = -8%/ -2% =4

So, The cross price elasticity is positive than the good are said to be substitute as price of one decrease the demamd for another good.

Answer : Elasticity of demand =% Change in quantity demanded / % Change in price

1.5= % change in quantity demanded / -1.3%

-1.95% ,=% change in quantity demanded

Therefore, there is a increase in price has been increased in the revenue.

Answer : Option C is correct. 10units of clothing and 25 units of food are used to generate revenue from them.

Answer : Option C is correct.Marginal utility is an additional utility has been gained from an additional satisfaction level they have gained.

Answer : Option Biscorrect.The law of diminishing marginal utility is the additional utility that has been gained from consuming additional units of good consumed.

Answer : Option A is correct.kathy marginal utility of consuming pizza has been decreasing and utility has been declined.