Diminishing marginal rate of substitution for a good means: I. decreasing the quantity of a good that the consumer would give up for one more additional quantity of the other good II. increasing the quantity of a good that the consumer would give up for one more additional quantity of the other good III. no change for the quantity of a good that the consumer would give up for one more additional quantity of the other good IV. all answers are correct

Diminishing marginal rate of substitution for a good means: I. decreasing the quantity of a good that the consumer would give up for one more additional quantity of the other good II. increasing the quantity of a good that the consumer would give up for one more additional quantity of the other good III. no change for the quantity of a good that the consumer would give up for one more additional quantity of the other good IV. all answers are correct

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 13SQ

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Which of the following statements is true for a Giffen good? (a) Following a fall in the price of the good, there will be a decrease in the quantity demanded due to the substitution effect; an increase in the quantity demanded due to the income effect; the substitution effect will outweigh the income effect. (b) Following a fall in the price of the good, there will be an increase in the quantity demanded due to both the substitution and income effect and the two effects will therefore reinforce each other. (c) Following a fall in the price of the good, there will be an increase in the quantity demanded due to the substitution effect; a decrease in the quantity demanded due to the income effect; the substitution effect will outweigh the income effect. (d) Following a fall in the price of the good, there will be an increase in the quantity demanded due to the substitution effect; a decrease in the quantity demanded due to the income effect; the income effect will outweigh the…
4. 1).Find the marginal utility of each of the two commodities? If the two commodities are free, what are the consumed quantities of the two commodities? 2) .If the price of X is two Riyals and the price of Y is 4 Riyals, and the income is 32, find the equilibrium quantities? 3) .If the price of Y drops to two Riyals, find the equilibrium quantities? Explain the graph?
According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana? They are both luxury goods. There is no relationship between the two goods. The two goods are substitutes in consumption. The two goods are complements in consumption.
Consider the increase in the price of a can of soda and assume that soda is a normal good. Describe how the income and substitution effects impact on the demand for the cola if its price increases. Also describe how these two effects interact for inferior goods if there is a fall in the price of the good. Use bullet points
Suppose that beer and pretzels are unrelated goods (neither complements nor substitutes). Which of the following must be true? The substitution effect of a decrease in the price of beer on pretzel consumption is smaller than offsets the income effect on pretzel consumption The substitution effect of a decrease in the price of beer on pretzel consumption is larger than the income effect on pretzel consumption The substitution effect of a decrease in the price of beer on pretzel consumption exactly offsets the income effect on pretzel consumption There is no substitution effect on pretzel consumption for a decrease in the price of beer
A consumer is always indifferent between one unit of good A and one unit of good B, no matter how much A or B she consumes. Initially A is cheaper. Then, the price of good A increases, but it is still cheaper than B. Discuss the substitution, income and total effect of this price change.
All goods have diminishing marginal utility, but for some goods (or activities), marginal utility falls quickly as you consume more, while for others, marginal utility falls slowly. Can you think of examples of goods that you continue to enjoy a great deal as your consumption increases? Can you think of goods for which your marginal utility decreases rapidly?
a) Jim buys gingerbread and candy, both of which are normal goods. When the price of gingerbread rises, the income effect induces Jim to buy _______ gingerbread and ________ candy. b) Jim buys candy and gingerbread, both of which are normal goods. When the price of gingerbread rises, the substitution effect induces Jim to buy_______gingerbread and________ candy.
5. Your budget is spent on either food or entertainment, both being normal goods. Suppose there is a rise in the price of food. a) In what direction would the substitution effect push the consumption of food? [Hint: The substitution effect measures the effect of what on what? What is the sign of the effect? In which direction has the relative price of food changed? So in what direction will the consumption of food change?] b) In what direction would the income effect push the consumption of food? c) In what direction would the substitution effect push the consumption of entertainment? d) In what direction would the income effect push the consumption of entertainment? e) If you know that consumption of entertainment falls, what would you conclude about the relative magnitudes of the income and substitution effects?
Vera considered Chips and Salsa perfect complements. She had $24 to spend on chips and salsa and she wanted to buy chips and salsa in the exact proportion of two jars of salsa for each bag of corn chips. When the price of salsa was $3 per jar and the price of chips was $2 per bag she bought six jars of salsa and three bags of chips. a) Suppose the price of salsa dropped to $2 per jar. What would happen to Vera’s purchases of chips and salsa? b) In an indifference curve diagram, draw Vera’s budget constraints before and after the price change and illustrate her optimal bundles in the two cases. c) Of the overall increase in her purchases of salsa, what portion is due to a substitution effect? What portion is due to an income effect? Clearly justify your answer. Does your answer depend on whether you use the Slutsky or the Hicks method to separate the substitution effect from the income effect?
a) Illustrate the consumption choice for an individual when two goods are considered "perfect substitutes" in consumption

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	I.	decreasing the quantity of a good that the consumer would give up for one more additional quantity of the other good
	II.	increasing the quantity of a good that the consumer would give up for one more additional quantity of the other good
	III.	no change for the quantity of a good that the consumer would give up for one more additional quantity of the other good
	IV.	all answers are correct