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14.7. Ann and Bob. Ann and Bob have the same income level and 4.3. OTHER HOUSEHOLD DECISIONS 161 face the same prices of goods x and y. The price of x is 4 and the price of y is 8. (a) At the current consumption level, Ann's MRS is equal to 1. In order to improve her situation, should Ann increase or decrease her consumption of x? (b) At the current consumption level, Bob's MRS is equal to 0.5. Is Bob's current consumption bundle optimal or suboptimal? (c) Suppose that, after adjusting their consumption levels, both Ann and Bob choose their optimal levels of x and y. Ann chooses x = 5 and Bob chooses x = 4. True or false: Ann and Bob have the same MRS at their current consumption levels. (d) Continuing with the assumptions of the previous question. True or false: If Ann exchanges 1 unit of x for 2 units of y, then both Ann and Bob become better off. (e) Bob's income increased and his consumption of x changed from 4 to 4.5. True or false: x is an inferior good for Bob.

14.7. Ann and Bob. Ann and Bob have the same income level and 4.3. OTHER HOUSEHOLD DECISIONS 161 face the same prices of goods x and y. The price of x is 4 and the price of y is 8. (a) At the current consumption level, Ann's MRS is equal to 1. In order to improve her situation, should Ann increase or decrease her consumption of x? (b) At the current consumption level, Bob's MRS is equal to 0.5. Is Bob's current consumption bundle optimal or suboptimal? (c) Suppose that, after adjusting their consumption levels, both Ann and Bob choose their optimal levels of x and y. Ann chooses x = 5 and Bob chooses x = 4. True or false: Ann and Bob have the same MRS at their current consumption levels. (d) Continuing with the assumptions of the previous question. True or false: If Ann exchanges 1 unit of x for 2 units of y, then both Ann and Bob become better off. (e) Bob's income increased and his consumption of x changed from 4 to 4.5. True or false: x is an inferior good for Bob.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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i know you guys have a policy for answering 4 parts only so so B, C, D, E for me

4.3. OTHER HOUSEHOLD DECISIONS ㅗ Py Py ¥ Ув DA bs B C xc FIGURE 4.16 Income and substitution effects bc (i) True or false: Since Ann and Bob have the same income level, they also must have the same level of consumer surplus. 162
Transcribed Image Text:4.3. OTHER HOUSEHOLD DECISIONS ㅗ Py Py ¥ Ув DA bs B C xc FIGURE 4.16 Income and substitution effects bc (i) True or false: Since Ann and Bob have the same income level, they also must have the same level of consumer surplus. 162
14.7. Ann and Bob. Ann and Bob have the same income level and 4.3. OTHER HOUSEHOLD DECISIONS 161 face the same prices of goods x and y. The price of x is 4 and the price of y is 8. (a) At the current consumption level, Ann's MRS is equal to 1. In order to improve her situation, should Ann increase or decrease her consumption of x? (b) At the current consumption level, Bob's MRS is equal to 0.5. Is Bob's current consumption bundle optimal or suboptimal? (c) Suppose that, after adjusting their consumption levels, both Ann and Bob choose their optimal levels of x and y. Ann chooses x = 5 and Bob chooses x = 4. True or false: Ann and Bob have the same MRS at their current consumption levels. (d) Continuing with the assumptions of the previous question. True or false: If Ann exchanges 1 unit of x for 2 units of y, then both Ann and Bob become better off. (e) Bob's income increased and his consumption of x changed from 4 to 4.5. True or false: x is an inferior good for Bob. (f) Suppose Bob's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Bob's consumption of x decreased from x = 4 to x = 3. True or false: The income effect of the price increase is necessarily negative. Suppose Ann's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Ann's consumption of x increased from x = 5 to x = 6. True or false: Ann's behavior necessarily contradicts economic theory. (h) Suppose Ann's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Ann's consumption of x increased from x = 5 to x = 6. True or false: The income effect of the price change on Ann's consumption of x must be positive.
Transcribed Image Text:14.7. Ann and Bob. Ann and Bob have the same income level and 4.3. OTHER HOUSEHOLD DECISIONS 161 face the same prices of goods x and y. The price of x is 4 and the price of y is 8. (a) At the current consumption level, Ann's MRS is equal to 1. In order to improve her situation, should Ann increase or decrease her consumption of x? (b) At the current consumption level, Bob's MRS is equal to 0.5. Is Bob's current consumption bundle optimal or suboptimal? (c) Suppose that, after adjusting their consumption levels, both Ann and Bob choose their optimal levels of x and y. Ann chooses x = 5 and Bob chooses x = 4. True or false: Ann and Bob have the same MRS at their current consumption levels. (d) Continuing with the assumptions of the previous question. True or false: If Ann exchanges 1 unit of x for 2 units of y, then both Ann and Bob become better off. (e) Bob's income increased and his consumption of x changed from 4 to 4.5. True or false: x is an inferior good for Bob. (f) Suppose Bob's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Bob's consumption of x decreased from x = 4 to x = 3. True or false: The income effect of the price increase is necessarily negative. Suppose Ann's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Ann's consumption of x increased from x = 5 to x = 6. True or false: Ann's behavior necessarily contradicts economic theory. (h) Suppose Ann's consumption choices are always optimal. We observe that, when the price of x increased from 4 to 6, Ann's consumption of x increased from x = 5 to x = 6. True or false: The income effect of the price change on Ann's consumption of x must be positive.
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