EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 3.10, Problem 1TTA
To determine
To provide an intuitive reason for the relationship between the welfare gain triangle and slope of the demand curve.
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Recent research confirms that the demand for cigarettes is not only price inelastic, but it also indicates smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes.
How can the income and substitution effects of a price change help explain this?
Find the equilibrium price using the welfare optimization method directly.
The following figure shows the demand curve of commodity x (for a level of income W and the prices of the other commodities constant).
The income effect due to an increase in the price of commodity x from 10 to 11 is:
Positive
Cannot be determined from the graph.
Negative
Dominated by the substitution effect
Could be positive or negative.
Chapter 3 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 3.2 - Prob. 1MQCh. 3.2 - Prob. 2MQCh. 3.3 - Prob. 1TTACh. 3.3 - Prob. 2TTACh. 3.3 - Prob. 2MQCh. 3.4 - Prob. 1TTACh. 3.4 - Prob. 2TTACh. 3.5 - Prob. 1MQCh. 3.5 - Prob. 2MQCh. 3.7 - Prob. 1MQ
Ch. 3.7 - Prob. 2MQCh. 3.9 - Prob. 1MQCh. 3.9 - Prob. 2MQCh. 3.10 - Prob. 1TTACh. 3.10 - Prob. 2TTACh. 3.11 - Prob. 1MQCh. 3.11 - Prob. 2MQCh. 3.12 - Prob. 1TTACh. 3.12 - Prob. 2TTACh. 3.12 - Prob. 1MQCh. 3.12 - Prob. 2MQCh. 3.12 - Prob. 1.1TTACh. 3.12 - Prob. 2.1TTACh. 3.14 - Prob. 1MQCh. 3.14 - Prob. 2MQCh. 3.14 - Prob. 1TTACh. 3.14 - Prob. 2TTACh. 3.15 - Prob. 1MQCh. 3.15 - Prob. 2MQCh. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQCh. 3 - Prob. 3.1PCh. 3 - Prob. 3.2PCh. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Prob. 3.8PCh. 3 - Prob. 3.9PCh. 3 - Prob. 3.10P
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- Use a well labeled diagram and illustrate the costumer equilibrium by drawing a budget constraint and an indifference curve. There will be amount of goods X on the x-axis and amount of good Y on the y-axis. Then decrease the price of good X and illustrate the effect of a decrease in the price of good X by dividing the total effect into substitution effect and income effect considering that good X is an inferior good. Explain the meaning of the income and substitution effects of a price change.arrow_forwardThe 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.arrow_forwardA result of welfare economics is that the equilibrium price of a product is considered to be the best price because itarrow_forward
- It is proven mathematically that indifference curves are convex due to:(a) rising marginal rates of substitution.(b) the inverse association between the quantity demanded and the price.(c) costs decreasing in value.(d) the marginal rates of substitution being negative.arrow_forwardQ.3 Explain the following utility functions graphically and mathematically: 1. Perfect substitutes utility function 2. Perfect complements utility function 3. Cobb-Douglas utility function.arrow_forwardWhich of the following is true of a Giffen good? It is a particular case of an inferior good where the income effect is greater than the substitution effect and runs counter to it. It is similar to an inferior good, though the income effect is positive and more significant than the substitution effect. It is similar to an inferior good, though the income effect is not as significant for the Giffen good as it is for the inferior good. It is most prevalent in developing economies.arrow_forward
- What are the examples of complement and substitute goods, where a change in price of one good would cause a change in demand of the other good? Show Graphically.arrow_forwardSuppose a consumer has preferences between two goods that are perfect substitutes. In this case would the consumers be better off or worse off if the tax with rebate based on original consumption were in effect?arrow_forwardEconomist George Stigler once wrote that, according to consumer theory, “if consumers do not buy less of a commodity when their incomes rise, they will surely buy less when the price of the commodity rises.” What kind of commodity was Stigler referring to? A normal good An inferior good When the price of this commodity rises, the substitution effect is (positive / negative) and the income effect is (positive / negative). So the net result for consumption of this commodity (depends on which effect dominates / is a decrease / is an increase).arrow_forward
- Find demand functions for the following preferences: 1. Perfect Substitutes 2. Perfect Complements 3. Neutrals and Badsarrow_forwardIdentify the type of goods which have negative income demand. a. Substitute goods b. Inferior goods c. Complementary goods d. Normal goodsarrow_forwardConsider an individual whose preferences are represented by the utility function U(x1,x2) = min {3x1+x2 , x1+3x2}. For this individual, Calculate her demand function X1* (P1, P2,m) Calculate her own price, cross price, and income elasticities at X1*(1, 2, 24) and at X1*(1, 4, 24). Based on these, can you say the goods 1 and 2 are (gross, or Marshallian) complements or substitutes?arrow_forward
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