Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 6.A, Problem 3P
To determine
Is the statement acceptable or not acceptable.
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Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house
(A) The income effect is significant and acts opposite to the substitution effect
(B) None is correct
(C) The income effect is not significant and acts opposite to the substitution effect
(D) The income effect is significant and reinforces the substitution effect
Calculate the marginal rate of substitution if the consumer is will to leave good y from 100 to 60 to 40 to 30 to 25 to 23 to 22 to get for each an additional unit of x.
suppose a consumer's marginal rate of substitute is three slice of pizza for one coke . if the price of coke is $1 and the price of three slices of pizza is $2 , would the consumer change his on her consumption combination
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Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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- Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that 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 finding?arrow_forwardCho lives in Miami and loves to eat desserts. She spends her entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.50, and a piece of pumpkin pie is priced at $4.50. At her current consumption point, Cho's marginal rate of substitution (MRS) of pudding for pie is 5. This means that Cho is willing to trade five bowls of pudding per week for one piece of pie per week.arrow_forwardSuppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain. with simple examplearrow_forward
- (Substitution and Income Effects) Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain.arrow_forwardDiminishing marginal rate of substitution for a good means: I. decreasing the quantity of a good that the consumer would give up for one more additional quantity of the other good II. increasing the quantity of a good that the consumer would give up for one more additional quantity of the other good III. no change for the quantity of a good that the consumer would give up for one more additional quantity of the other good IV. all answers are correctarrow_forwardFrom the information given above calculate the price of Y. Given the information above, calculate how many X this consumer could purchase if all $1,000 were spent on X. Calculate the price of X. Suppose the price of X decreases to 2, what would be the marginal rate of substitution at the new optimal point?arrow_forward
- A consumer earns a wage of 20 dollars per hour and has an unearned income of $100 per day. What would the consumption-leisure budget line look like? In the graph, also draw the effect of a wage cut, (including the income and substitution effects). Assume she works less after the wage change.arrow_forwardSuppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain.arrow_forwardSuppose that a decrease in solar panel prices leads to an increase in a consumer’s demand for solar panels. How could you decompose the increase in demand into an income and substitution effect?arrow_forward
- If a consumer is rational and maximizing utility, their Marginal Rate of Substitution will be equal to the price ratio. Why is this?arrow_forwardJack currently works 38 hours per week at a wage rate of $15 per hour. His marginal rate of substitution is $20 per hour. Is Jack's utility maximized? If yes, explain why. If no, explain why not and discuss what Jack should do in order to further increase utility.arrow_forwardQ30 The marginal rate of substitution is the... a. Rate of substitution between the marginal values of any two goods. b. Rate of substitution between the total utility of any two goods. c. Substitution of one good for another as we move along the budget line. d. Amount of one good the consumer is willing to give up in exchange for another to keep total expenditure unchanged. e. Amount of one good the consumer is willing to give up in exchange for another to remain indifferent.arrow_forward
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