Consider the consumer in question 4, with utility function over x1 and x2: u(x1, x2) = = x1x2.5 The price of good 1 is p1=1; the price of good 2 is p2=2; and income is m=24. Suppose now that the income doubles to 48. Indicate which of the following statements is true. Select one: O Demand for good 1 remains constant. O Demand for good 2 decreases. O Both goods are normal goods and hence the income expansion path has a positive slope. O Both goods are normal goods and hence the income expansion path has a negative slope. O None of the statements is true. 4

Consider the consumer in question 4, with utility function over x1 and x2: u(x1, x2) = = x1x2.5 The price of good 1 is p1=1; the price of good 2 is p2=2; and income is m=24. Suppose now that the income doubles to 48. Indicate which of the following statements is true. Select one: O Demand for good 1 remains constant. O Demand for good 2 decreases. O Both goods are normal goods and hence the income expansion path has a positive slope. O Both goods are normal goods and hence the income expansion path has a negative slope. O None of the statements is true. 4

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.8P

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