Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Given the consumption function C=a + bY (with a>Ø;Ø<b<):
(a) Find its
marginal function = b
marginal function and its average functi on.
atby
averagetuncction=
Find the income elasticity of consumption ECY,and determine
its sign, assuming Y>0,
Show that this consumption function is inelastic at all
positive income levels.
Expert Solution
Step 1
Cosuption function
................. (1)
where a>0 and 0<b<1
The marginal function of consumption function:
differentiating eq 1 w r t Y
Average function:
Dividing eq 1 by Y
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