4. You are given the following information about consumer's optimal consumption choices fordifferent prices and income combinations:P1(£)P2 (£)м (€)Optimal bundle (x1, x2)441001510241002512.5468207448012842801020You know that bundle (15, 10) and bundle (20, 7) are on the same indifference curve.Suppose that at first, the consumer faces the following budget constraint: 4x, + 4x2 = 100.Then, the price of good 1 falls to 2. The following can be said:a) Due to the substitution effect of a reduction in p, the consumer buys 5 more units ofx1 and 3 units less of x2.b) The price effect of p, causes an increase in the consumption of 10 units of x1.c) The compensating variation in income is a reduction of £32.d) The income effect adds only 5 units of x1.e) All of the above.f) None of the above.

An indifference curve is a graphical presentation of the points that connect on a graph representing…

4. You are given the following information about consumer's optimal consumption choices for different prices and income combinations: Pi(£) P2 (£) M (£) Optimal bundle (x1, x2) 4 4 100 15 10 2 4 100 25 12.5 2 4 68 20 7 4 4 80 12 4 2 80 10 20 You know that bundle (15, 10) and bundle (20, 7) are on the same indifference curve. Suppose that at first, the consumer faces the following budget constraint: 4x1 + 4x2 = 100. Then, the price of good 1 falls to 2. The following can be said: a) Due to the substitution effect of a reduction in p, the consumer buys 5 more units of x1 and 3 units less of x2. b) The price effect of p1 causes an increase in the consumption of 10 units of x1. c) The compensating variation in income is a reduction of £32. d) The income effect adds only 5 units of x1. e) All of the above. f) None of the above.

4. You are given the following information about consumer's optimal consumption choices for different prices and income combinations: Pi(£) P2 (£) M (£) Optimal bundle (x1, x2) 4 4 100 15 10 2 4 100 25 12.5 2 4 68 20 7 4 4 80 12 4 2 80 10 20 You know that bundle (15, 10) and bundle (20, 7) are on the same indifference curve. Suppose that at first, the consumer faces the following budget constraint: 4x1 + 4x2 = 100. Then, the price of good 1 falls to 2. The following can be said: a) Due to the substitution effect of a reduction in p, the consumer buys 5 more units of x1 and 3 units less of x2. b) The price effect of p1 causes an increase in the consumption of 10 units of x1. c) The compensating variation in income is a reduction of £32. d) The income effect adds only 5 units of x1. e) All of the above. f) None of the above.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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