Give the definition of (gross) complements and substitutes. Draw the indifference curves associated with each. Give an intuitive example of each.

Q: Assume that Talib has well-behaved preferences and consumes hamburgers (vertical axis) and steak…

A: When the price(P) of a normal good(here, steak) falls, its quantity demanded rises. It can be split…

Q: Assume the demand for cherries is elastic and that the producer of cherries increases the price of…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Lou's preferences over pizza (X) and other goods (y) are given by U(X,Y)=XY^2 with associated…

A: Utility:The utility is the power or capacity of the goods and services to satisfy human wants, it is…

Q: 2 Debbie consumes only D (Donuts) and E (Eggs). Furthermore, it is known that she considers D and E…

A: a) Since D and E are perfect complements, Debbie will only consume E if she has 2/P_D donuts.…

Q: If a good is a Normal Good and its price decreases, what are the directions of the Substitution…

A: Answer- (A)   That is both increases

Q: raw indifference curves for two goods that are perfect complements and two goods that are perfect…

A: The indifference curve represents the different combinations of two goods that provide the same…

Q: Jerry spends his entire budget on bread and gasoline. His preferences are complete, transitive,…

A: Substitution Effect: This refers to the change in quantity demanded of a good or service as a result…

Q: Consider the consumer only consumes two goods namely flour and potatoes. Potatoes are an inferior…

A: The consumer is said to consume only two goods which means that there are only two goods that are…

Q: Which of the following is incorrect? O Income effect can be zero If consumer consumes two goods,…

A: Answer: A Giffen good is a good that has a positive relationship with price. It means when the price…

Q: Draw figures that show your indifference curves for the following pairs of goods: ■ Right gloves and…

A: A graph of two products combined that provide the consumer with equal utility and satisfaction is…

Q: For a small change in px, use the Slutsky equation to find the substitution and income effects for…

A: The  change in demand due to a change in purchasing power of a good is income effect. The…

Q: Consider the following pairs of goods: Right and left boots Hazelnut Butter and Almond Butter Iphone…

A: The Indifference curve is the summation of two goods or commodities that provide equal satisfaction…

Q: Normal goods cannot be Giffen goods because their income effect is smaller than their substitution…

A: For the normal goods, both the income and the substitution effect both work in the same direction.…

Q: When there is a change in price, there is an income effect and a substitution effect. Which is…

A: The income effect is that the change within the consumption of products by consumers supported their…

Q: Marty purchases two goods, food and clothing. He has a diminishing marginal rate of substitution of…

A: Normal goods refer to those goods whose demand increases with the increase in the income of the…

Q: why does a substitution between goods cause a negative slope on a demand curve?

A: The demand curve is a graphical representation of the demand schedule which indicates the different…

Q: Suppose that a consumer has $200 to spend on two goods: beer and pretzels. The price of beer is…

A: Given; Income of the consumer=$200 Price of beer= $6 Price of pretzels= $3

Q: Draw the following scenario: Assume that Sam has well-behaved preferences and consumes hamburgers…

A: When the price(P) of a normal good(here, steak) falls, its quantity demanded rises. It can be split…

Q: Coke and Pepsi are perfect substitutes. Initially the price of Coke is higher than the price of…

A: The perfect substitutes are the goods which cannot be used simultaneously and can only be used in…

Q: Yakov consumes only cheese and crackers. Cheese and crackers    both be inferior goods for…

A: According to inferior goods, as person’s income rises, the demand for inferior goods decreases.…

Q: Explain what is meant by the Income and Substitution Effects? With the help of standard Indifference…

A: The interaction between the income and substitution effects will determine how the quantity required…

Q: For the Cobb-Douglas utility function: the income and substitution effects are necessarily the same…

A: The Cobb-Douglas utility function is given by: U(X,Y) = X^a * Y^b where X and Y are the quantities…

Q: If consumers buy less of a commodity when their incomes rise, this commodity is  ( an inferior good…

A: In the market, the change in the consumers buying decision depends upon two types of price effect,…

Q: Assume the price of good A goes up and the consumer decreases purchases of good A and decreases…

A: Luxury goods refer to the types of goods whose demand rises more than proportionally income rises so…

Q: Consider the increase in the price of a can of soda and assume that soda is a normal good. Describe…

A: Normal goods are those goods that are positively / directly related to the income level of…

Q: Explain how the downward sloping demand curve can be derived using indifference curves and budget…

A: For two commodities, an indifference curve is a graph that shows the combinations of the two…

Q: Consider that Pepsi (P) and Coke (C) are perfect substitutes. Draw the graph of an indifference map…

A: An indifference curve (IC) shows combination of two goods (substitutes or complements) that give a…

Q: Make a curve of the budget line curve with the Indifference curve, make a separation between the…

A: In economics, and in particular in consumer choice theory, the substitution effect is one aspect of…

Marginal Rate of Technical Substitution

MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.

Preferences and Utility Analysis

Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.