(A) Suppose an individual who derives utility u(x, y) from consuming a units of the goodX and y units of the good Y. Prices of goods X and Y are respectively p = 1 andPy = p. Furthermore, the individual has a budget m. What is the demand for Y ifthe utility function is: u(x, y) = min{x, ay}.(a) y(p, m) = am(b) y(p, m) ==(c) y(p, m)=(d) y(p, m) ==ama+pma+pm1+p(B) Same setup as (A) with u(x, y) = ax + y and ap<1. What is the demand for X?(a) x(p, m) = m(b) x(p, m) = 0(c) x(p, m) = m(d) x(p, m) = am(C) Suppose a normal good X. Its price increases from pa to p > Pr. The quantitydemanded of good X is q. Which of the following is true ?(a) The substitution effect increases q but the income effect decreases q and over-come the substitution effect. Overall q decreases.(b) The substitution effect decreases q but the income effect increases qcome the substitution effect. Overall q increases.and over-(c) Both the income and substitution effects increase q. Overall q increases.(d) Both the income and substitution effects decrease q. Overall q decreases.(D) Suppose an inferior good X (not Giffen). Its price increases from pr to pr> Pr. Thequantity demanded of good X is q. Which of the following is true ?(a) The income effect increases q but the substitution effect decreases q and over-come the income effect. Overall q decreases.(b) Both the income and substitution effects decrease q. Overall q decreases.(c) The substitution effect decreases q but the income effect increases and over-come the substitution effect. Overall q increases.(d) Both the income and substitution effects increase q. Overall q increases.

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(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good X and y units of the good Y. Prices of goods X and Y are respectively Pr = 1 and Py = p. Furthermore, the individual has a budget m. What is the demand for Y if the utility function is: u(x, y) = min{x, ay}. (a) y(p, m) = am (b) y(p, m) = (c) y(p, m): = (d) y(p, m) = = am a+p m a+p m 1+p

(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good X and y units of the good Y. Prices of goods X and Y are respectively Pr = 1 and Py = p. Furthermore, the individual has a budget m. What is the demand for Y if the utility function is: u(x, y) = min{x, ay}. (a) y(p, m) = am (b) y(p, m) = (c) y(p, m): = (d) y(p, m) = = am a+p m a+p m 1+p

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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