10. Assume an individual's preferences are represented by the following indifference map and he has an income of $400. Which of the following is shown when the price of Good I is $20 and the price of Good 2 increases from $10 to $16? Note: Even though the price of Good 2 is increasing, the steps to determine the income and substitution effects are the same. 50 45 40 35 30 25 20 15 10 5. 0S 10 15 20 25 30 35 40 50 45 Good 1 • Good 2 is a normal good. • Good 2 is an inferior good, but not a Giffen good. Good 2 does not satisfy the Law of Demand. Ignoring the Income Effect, the Substitution Effect will cause the individual to consume more of Good I. A. B. C. 3. None of the above statements are true. D. Good 2
10. Assume an individual's preferences are represented by the following indifference map and he has an income of $400. Which of the following is shown when the price of Good I is $20 and the price of Good 2 increases from $10 to $16? Note: Even though the price of Good 2 is increasing, the steps to determine the income and substitution effects are the same. 50 45 40 35 30 25 20 15 10 5. 0S 10 15 20 25 30 35 40 50 45 Good 1 • Good 2 is a normal good. • Good 2 is an inferior good, but not a Giffen good. Good 2 does not satisfy the Law of Demand. Ignoring the Income Effect, the Substitution Effect will cause the individual to consume more of Good I. A. B. C. 3. None of the above statements are true. D. Good 2
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 5CQQ
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Transcribed Image Text:10. Assume an individual's preferences are represented by the following indifference map and he
has an income of S400. Which of the following is shown when the price of Good I is $20 and the
price of Good 2 increases from $10 to S16?
Note: Even though the price of Good 2 is increasing, the steps to determine the income and
substitution effects are the same.
50
45
40
35
30
25
20
15
10
10
15
20
25
30
35
40
45
50
Good 1
Good 2 is a normal good.
Good 2 is an inferior good, but not a Giffen good.
Good 2 does not satisfy the Law of Demand.
• Ignoring the Income Effect, the Substitution Effect will cause the individual to consume
more of Good I.
A.
B.
21
C.
3
None of the above statements are true.
D.
Good 2
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