(a) What are the effects of an increase in the price of good A on a consumer’s demand if i) good A is a normal good. ii) good A is an inferior good. iii) good A is a Giffen good. Explain your answer with reference to income and substitution effects. (b) When total utility is maximum, marginal utility will be negative. True or false? Explain your answer. (c) How will you resolve the diamond-water paradox of differing prices? Explain. (d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate. (e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant and elastic.
(a) What are the effects of an increase in the price of good A on a consumer’s demand if i) good A is a normal good. ii) good A is an inferior good. iii) good A is a Giffen good. Explain your answer with reference to income and substitution effects. (b) When total utility is maximum, marginal utility will be negative. True or false? Explain your answer. (c) How will you resolve the diamond-water paradox of differing prices? Explain. (d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate. (e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant and elastic.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section6.A: Appendix: Indifference Curves And Utility Maximization
Problem 2AQ
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Question
(a) What are the effects of an increase in the price of good A on a consumer’s
i) good A is a normal good.
ii) good A is an inferior good.
iii) good A is a Giffen good.
Explain your answer with reference to income and substitution effects.
(b) When total utility is maximum,
(c) How will you resolve the diamond-water paradox of differing prices? Explain.
(d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate.
(e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant and elastic.
Transcribed Image Text:Q.5 (a) What are the effects of an increase in the price of good A on a consumer's demand if
i) good A is a normal good.
ii) good A is an inferior good.
iii) good A is a Giffen good.
Explain your answer with reference to income and substitution effects.
(b) When total utility is maximum, marginal utility will be negative. True or false? Explain your
answer.
(c) How will you resolve the diamond-water paradox of differing prices? Explain.
(d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A
relative to B. Evaluate.
(e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant
%3D
and elastic.
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