What happens as the elasticity of substitution between two goods increases? The MRS becomes closer to 1. The optimal quantity demanded for both goods increases. The income elasticity of demand of the good increases. The degree of substitutability between the two goods goes down. The utility function becomes quasilinear but not homothetic.
What happens as the elasticity of substitution between two goods increases? The MRS becomes closer to 1. The optimal quantity demanded for both goods increases. The income elasticity of demand of the good increases. The degree of substitutability between the two goods goes down. The utility function becomes quasilinear but not homothetic.
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.12P
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Transcribed Image Text:What happens as the elasticity of substitution between two goods increases?
The MRS becomes closer to 1.
O The optimal quantity demanded for both goods increases.
The income elasticity of demand of the good increases.
The degree of substitutability between the two goods goes down.
O The utility function becomes quasilinear but not homothetic.
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