5) Consider the following case of perfect substitutes, U(T1, T2) = 3x1 + 2x2 Assume the budget constraint, y = px1 + x2, with the price of good 2 nor- malized to 1. a) Discuss the implications of these kinds of preferences. d)Under perfect substitutes at what price is the consumer indifferent between consuming x1 and x2.? At what price will they only consume good 1? good 2? e) Suppose there is a p such that there is an interior solution in the case of perfect substitutes, how much of good 1 and 2 is purchased?

5) Consider the following case of perfect substitutes, U(T1, T2) = 3x1 + 2x2 Assume the budget constraint, y = px1 + x2, with the price of good 2 nor- malized to 1. a) Discuss the implications of these kinds of preferences. d)Under perfect substitutes at what price is the consumer indifferent between consuming x1 and x2.? At what price will they only consume good 1? good 2? e) Suppose there is a p such that there is an interior solution in the case of perfect substitutes, how much of good 1 and 2 is purchased?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.5P

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Goods x and y are perfect substitutes. When the market price of good x is $5/unit, firm F produces 500 units of x. When the price of y rises, 100 consumers of y shift to the consumption of good x. This causes industry analysts to believe that firm f has increased quantity supplied of x by 100 units to meet the higher demand for it. To arrive at this conclusion, the industry analysts are assuming that a. Good x is the only substitute of y available to them. b. Each person will now buy more of x than they did prior to the increase in the price of y. c. Good y is an inferior good. d. The law of supply does not hold for good y. e. The new buyers of good x will, on average, consume one unit each. It’s apparently not b.
If the price of product X falls and this causes the demand for product Y to shift to the right, then we can conclude that X and Y are. A. Substitutes B. Free goods C. Compliments D. None of the above
Which of the ff. is correct with regards to the demand curve? A. If the price of the good increases, the demand curve for the good will shift to the left B. If the price of the good increases, the consumers have the incentive to look for substitutes, thus, the quantity demanded and its price are inversely related C. Income of the consumers is written on the vertical axis D. Varying preferences of the consumers is reflected in the demand curve and is written on the horizontal axis
Q1.14 Utility from consuming a good is understood by economists to mean; (a) how often we consume the good.(b) how much satisfaction or benefit we get from consuming the good.(c) how much it costs to buy the good.(d) how we best use the good. Q.1.15 The marginal utility of a good or service declines as one more unit is consumedbecause:(a) supply slopes upwards.(b) consumers are constrained by income.(c) of the law of diminishing marginal utility.(d) prices move with demand.
If the demand function face by the consumer for good X is given by X=15+MP-120 Where X = Quantity demanded, M = income and P = Price of product X. Assume his original income is Kshs. 3200 per month and price of good X has increased from Kshs. 10 per unit to Kshs. 20 per unit. Calculate the magnitude of total effect (TE), substitution effect (SE) and income effect (IE) resulting from this change in price.
In the following question(s) you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X. Refer to the above. An increase in the price of a product that is a close substitute for X will: Group of answer choices a. decrease D, increase P, and decrease Q. b. increase D, increase P, and decrease Q. c. increase D, increase P, and increase Q. d. increase D, decrease P, and increase Q.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a complement to X will Multiple Choice increase D, increase P, and decrease Q. increase D, increase P, and increase Q. decrease D, decrease P, and decrease Q. decrease S, decrease P, and decrease Q.
Which of the following statements is correct? Suppose leisure is a normal good, then an increase in non-labor income always increases labor supply. Suppose leisure is a normal good, then an increase in wage rate increases labor supply if the income effect dominates the substitution effect. Suppose leisure is an inferior good, then an increase in non-labor income increases leisure hours. Suppose leisure is a normal good, then an increase in non-labor income reduces labor supply. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
The following are correct statements about the Income Effect (IE) and Substitution Effect (SE) coming from an increase in Px, EXCEPT: Question 7 options: I.E. is the result of a decline in Purchasing Power on consumers coming from an increase in Px. S.E. is the result of the substitution for alternative goods that the consumer implement as a result of an increase in Px. If two goods are close substitutes, then SE is stronger than IE. If two goods are complements, then IE is equal in proportion than SE.
Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes quantity demanded and P denotes price: QA = 120 - 3.5 PA + 6PB QB = 100 - 2PB + 3PC QC = 1500 - 0.5PC - 2PA. Based on these demand curves, which of the following pairs of goods are known to be substitutes? Based on these demand curves, which of the following pairs of goods are known to be Complements?
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Which factor that influences change in buying plan, other than price of good? Find out market equilibrium price and quantity from the demand function: QD = 15-4p and supply function: QS= - 1+ 6p. Show it graphically.