A consumer has a Cobb-Douglas utility function and consumes two goods x and y. If the price of good x falls: a. (Consumption of X/Consumption of Y) will increase b. (Consumption of X/Consumption of Y) will decrease c. (Consumption of X/Consumption of Y) will not change d. Impossible to say without more information 18

A consumer has a Cobb-Douglas utility function and consumes two goods x and y. If the price of good x falls: a. (Consumption of X/Consumption of Y) will increase b. (Consumption of X/Consumption of Y) will decrease c. (Consumption of X/Consumption of Y) will not change d. Impossible to say without more information 18

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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sketch a person’s indifference map and budget line for two goods, X on the horizontal axis and Y on the vertical axis. Mark the optimum consumption point. Now illustrate the following (you might need to draw a separate diagram for each): (a) A rise in the price of good X (a normal good), but no change in the price of good Y. (b) A shift in the person’s tastes from good Y to good X. (c) A fall in the person’s income and a fall in the price of good Y, with the result that the consumption of Y remains constant (but that of X falls).
Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 20 and his marginal utility from an additional unit of housing is 180. Furthermore, suppose the price of a unit of food is $1.00 and the price of a unit of housing is $2.00. Can Bob increase his utility without changing his total expenditures on food and housing? Holding expenditures constant, A. Bob can increase utility by spending more on food and less on housing. B. Bob can increase utility by spending more on food and the same amount on housing. C. Bob can increase utility by spending less on food and more on housing. D. Bob cannot increase his utility. E. Bob can increase utility by spending more on food and more on housing.
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