10 . Consider a consumer with a utility function U = x1 + x2. Initially, the consumer was only purchasing good 2, but after the price of good 1 was reduced, the consumer switched all of her consumption into good 1. The total change in consumption of good 1 is due to the pure substitution effect (and the income effect is zero). True False
10 . Consider a consumer with a utility function U = x1 + x2. Initially, the consumer was only purchasing good 2, but after the price of good 1 was reduced, the consumer switched all of her consumption into good 1. The total change in consumption of good 1 is due to the pure substitution effect (and the income effect is zero). True False
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.2P
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10
. Consider a consumer with a utility function U = x1 + x2. Initially, the consumer was only purchasing good 2, but after the
True
False
12.
If a consumer has homothetic preferences (for two possible goods, good 1 and 2) we know that:
They spend a fixed proportion of their income on each good (for given prices)
O at least one good is an inferior good
both goods must be normal
all changes in consumption are derived from the pure substitution effect (that is, there are no income effects)
both a and c
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