MICROECONOMICS 21E W/CNCT
21st Edition
ISBN: 9781307005851
Author: McConnell
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 5RQ
To determine
Income effect.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
A consumer has $300 to spend on goods X and Y. The market prices of these two goodsare Px = $15 and Py = $5. (LO2)a. What is the market rate of substitution between goods X and Y?
A consumer’s budget set for two goods (X and Y) is 600 ≥ 3X + 6Y. (LO2)
a. Illustrate the budget set in a diagram.
b. Does the budget set change if the prices of both goods double and the consumer’s
income also doubles? Explain.
c. Given the equation for the budget set, can you determine the prices of the two
goods? The consumer’s income? Explain.
23. Suppose that there are two goods in an economy and that all prices double. At the sametime, the consumer’s income triples, then:(a) The budget line becomes steeper(b) The budget line becomes flatter(c) The budget line does not change(d) The slope of the budget line does not change, but it makes a parallel shift in towardsthe origin(e) The slope of the budget line does not change, but it makes a parallel shift out fromthe origin
Chapter 7 Solutions
MICROECONOMICS 21E W/CNCT
Ch. 7.1 - Prob. 1QQCh. 7.1 - Prob. 2QQCh. 7.1 - Prob. 3QQCh. 7.1 - Prob. 4QQCh. 7.A - Prob. 1ADQCh. 7.A - Prob. 2ADQCh. 7.A - Prob. 3ADQCh. 7.A - Prob. 1ARQCh. 7.A - Prob. 2ARQCh. 7.A - Prob. 1AP
Ch. 7.A - Prob. 2APCh. 7.A - Prob. 3APCh. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 8DQCh. 7 - Prob. 9DQCh. 7 - Prob. 10DQCh. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7P
Knowledge Booster
Similar questions
- For Jones, X and Y are perfect substitutes, and he is always willing to substitute 6 units of X for 2 units of Y. The price per unit of X is $5, and the price per unit of Y is $15. Jones’s income is $60. Compute the slope of Jones’s budget line and how many units of X does Jones consume? Suppose that the price of X increases to $10, and everything else remains the same. How many units of X does Jones consume? At which price does the demand curve of X become horizontally flat?arrow_forwardConsider a consumer who wants to consume only two commodities and has an income of $250. Assume the price of good 1 is $25 per unit and the price of good 2 is $50 per unit. Now, inflation causes the price of good 1 to increase to $30 per unit, while the price of good 2 increases to $60 per unit. On the other hand, the consumer also gets a raise of $110 (so her new income is $360). What will happen to the consumption bundles (x₁, x₂)?arrow_forwardE1 Suppose the Federal Government issues $100 worth of food stamps to everyone in your city. These stamps are coupons that can be exchanged for $100 worth of food at the grocery store and they can be used only by the person to whom they are issued. Draw your budgetline between “food’ and “all other goods” both before and after the food stamps are issued. Assume the price of food = price of “all other goods” = $1.00 and the individual’s initial income is $200.arrow_forward
- 14 : Assume that a consumer has a given budget or income of $10 and that she can buy only two goods, apples or bananas. The price of an apple is $2.00 and the price of a banana is $1.00. If the consumer decides to buy 4 apples, how many bananas can she also buy with the remainder of her budget, assuming she exhausts her income?arrow_forwardAntonio buys five new college textbooks during his first year at school at a cost of $80 each. Used books cost only $50 each. When the bookstore announces that there will be a 50 percent increase in the price of new books and a 50 percent increase in the price of used books, Antonio's father offers him $200 extra. What happens to Antonio's budget line? 1.) Using the line drawing tool, graph Antonio's original budget line. Label this line L1. 2.) Using the line drawing tool, then graph Antonio's new budget line. Label this line L2. Carefully follow the instructions above, and only draw the required objects.arrow_forwardWill the equilibrium price of orange juice increase or decrease in each of the following situations? LO7a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida. The prices of all beverages except orange juice fall in half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal.arrow_forward
- 12)Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer? A) 0 pairs of shoes and 0 shirts B) 2 pairs of shoes and 4 shirts C) 5 pairs of shoes and 0 shirts D) 0 pairs of shoes and 7 shirts E) 2 pairs of shoes and 3 shirtsarrow_forwardPetra has $480 to spend on DVDs and books. Abook costs $24 and a DVD costs $15. [LO 7.2]a. Write an equation for the budget constraint.Let x 5 books. Let y 5 DVDs.b. Use your equation to determine how manybooks Petra can buy if she buys 8 DVDs.arrow_forwardRefer to figure 6.1. Assume that L1 represents the budget line before a price change. Point C represents the: A) uncompensated effect on an increase in the price of soup B) compensated effect on a decrease in the price of soup C) uncompensated effect on a decrease in the price of soup D) compensated effect on an increase in the price of souparrow_forward
- B5. I. Suppose a typical Australian household purchases three goods, creatively named good A, good B, good C. The prices of these goods includes, a. If the typical household purchases two units of each good, what was the percentage increase in the price paid by the household for this basket among 2011 and 2012. b. If the typical household purchases 10 units of good B and 2 units of both good A and good C, what was the percentage increase in the price paid by the household for this basket. c. Given answers to a and b, what is the relationship between the market basket and the percentage price change.arrow_forward. Suppose that initially, bread is $2 per loaf,and cake is $2 per slice. Marie Antoinettehas $18 to spend on these items each week.At this income and those prices, Marie consumes 5 loaves of bread and 4 slices of cake.Then, the price of bread DECREASES to$1 per loaf. (The price of cake is still $2.)IF Marie’s budget had also fallen to $13so that she could still just afford her original bundle, she WOULD choose to spendthose $13 on 7 loaves of bread and 3 slicesof cake.But since Marie still has her original $18budget, she actually chooses to buy 4loaves of bread and 7 slices of cake afterthe price change.When the price of bread fell from $2 to $1,what was the substitution effect on Marie’sdemand for bread?arrow_forwardGeorge enjoys bananas and leisure. He sleeps 8 hours per day. Of the remaining 16 hours, for each hour he works he is paid 2 bananas. He also receives 6 bananas in dividends but has to pay 6 bananas in taxes. Draw George’s budget constraint (put consumption on the vertical axis and leisure on the horizontal). Make sure to show the vertical and horizontal intercepts as well as the slope. Now suppose that George chooses to work 6 hours per day. Find how many hours o f leisure and how many bananas he will consume, and show his optimal choice on the budget line using an indifference curve. Suppose that the government uses some of the taxes to give back to George income assistance of 4 bananas. Show the impact of the measure on George’s budget constraint Use an indifference curve to show George’s new optimal allocation and explain what will happen to his consumption of bananas and leisure if both are normal goods. The graphs below shows the behaviour of consumption of durables and…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage Learning
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou...
Economics
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning