(a) What are the effects of an increase in the price of good A on a consumer’s demand if i) good A is a normal good. ii) good A is an inferior good. iii) good A is a Giffen good. Explain your answer with reference to income and substitution effects. (b) When total utility is maximum, marginal utility will be negative. True or false? Explain your answer. (c) How will you resolve the diamond-water paradox of differing prices? Explain. (d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate. (e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant and elastic.
(a) What are the effects of an increase in the price of good A on a consumer’s demand if i) good A is a normal good. ii) good A is an inferior good. iii) good A is a Giffen good. Explain your answer with reference to income and substitution effects. (b) When total utility is maximum, marginal utility will be negative. True or false? Explain your answer. (c) How will you resolve the diamond-water paradox of differing prices? Explain. (d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate. (e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant and elastic.
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 5CQQ
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Question
(a) What are the effects of an increase in the price of good A on a consumer’s demand if
i) good A is a normal good.
ii) good A is an inferior good.
iii) good A is a Giffen good.
Explain your answer with reference to income and substitution effects.
(b) When total utility is maximum,
(c) How will you resolve the diamond-water paradox of differing prices? Explain.
(d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A relative to B. Evaluate.
(e) If Qd = 10/P then total revenue will be increasing in Qd and
Transcribed Image Text:Q.5 (a) What are the effects of an increase in the price of good A on a consumer's demand if
i) good A is a normal good.
ii) good A is an inferior good.
iii) good A is a Giffen good.
Explain your answer with reference to income and substitution effects.
(b) When total utility is maximum, marginal utility will be negative. True or false? Explain your
answer.
(c) How will you resolve the diamond-water paradox of differing prices? Explain.
(d) If MUA/MUB < PA/PB, the individual would increase/decrease the consumption of A
relative to B. Evaluate.
(e) If Qd = 10/P then total revenue will be increasing in Qd and elasticity of demand is constant
%3D
and elastic.
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