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1. Perfect Substitutes
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- Find demand functions for the following preferences: 1. Perfect SubstitutesCoke and Pepsi are perfect substitutes. Initially the price of Coke is higher than the price of Pepsi, later on, Coke reduced its price and become equal to the price of Pepsi, then again after that - Coke re-reduced its price and Pepsi became costlier than Coke. Draw the consumer’s demand curve for Coke using the optimal bundlesSuppose a consumer has preferences between two goods that are perfect substitutes. Can you change prices in such a way that the entire demand response is due to the income effect?
- Consider two goods, X and Y. If the price of Y increases and, as a consequence, the demand curve for X shifts to the left, then: X and Y are substitutes. X and Y are complements. X and Y are unrelated. X and Y are inferior goods.Suppose X and Y are substitutes. If the price of Y increases, the demand for X will most likely _______, and the quantity demanded of X will also _______. 1) increase, increase 2) increase, decrease 3) decrease, increase 4) decrease, decrease 5) None of the above.Economics If a consumer has a utility function of U = x + 2y, which statement is true? The MRSy→x = -1/2; x and y are perfect substitutes The MRSy→x = -2; x and y are perfect substitutes The MRSy→x = -1/2; x and y are perfect complements The MRSy→x = -1; x and y are perfect substitutes None of the above.
- If the demand curve for product A moves to the right, and the price of product B increases, it can be concluded that: a-) A and B are substitute goods; b-) A and B are complementary goods; c-) A is an inferior good, and B is a superior good; d-) Both goods A and B are inferior.Q.3 Explain the following utility functions graphically and mathematically: 1. Perfect substitutes utility function 2. Perfect complements utility function 3. Cobb-Douglas utility function.The utility function is U(x1, x2)= 3ln (x1)+ 5x2, the prices are p1 and p2, and income is y. Derive the ordinary demand functions for goods x1 and x2. Are goods normal? Explain. Are good substitutes? Are goods complements? Explain.
- The price of crayons has decreased and Shelly decides to buy fewer colored pencils. Shelly's preferences over crayons and colored pencils mean that: (Mark only one answer) Responses Crayons and colored pencils are inferior goods Crayons and colored pencils are normal goods Crayons and colored pencils are complements Crayons and colored pencils are substitutesThe 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.