Graph 1 below shows the indifference curves and budget constraints for an individual. Suppose that BC₁ reflects the original prices of the goods along with the income of the consumer. Then, the price of one of the good changes, but both the price of the other good and income remains the same for the consumer. After the price of one of the good changed, the consumer is now at BC₂. Good Y G W T BC₁ BC g IC₁ BC₂ IC₂ Good X
Economics: Public Economics
Question: 1
What can you say is happening from Graph 1 due to the change in the
a. The optimal consumption bundle was at W, and now is at G
b. The optimal consumption bundle was at T, and now is at G
c. The optimal consumption bundle was at G, and now is at T
d. The optimal consumption bundle was at T, and now is at W
e. The optimal consumption bundle was at W, and now is at T
f. The optimal consumption bundle was at G, and now is at W
Question: 2
What can be said about Good X and Good Y in Graph 1?
a. Good X and Good Y are both normal goods
b. Good X is a normal good and Good Y is an inferior good
c. Good X and Good Y are both inferior goods
d. Good X is an inferior good and Good Y is a normal good
Question: 3
Refer to Graph 1. Which of the following statements is true about the income effect for Good X?
a. The consumer had an increase in spending power, and purchased more of Good X
b. The consumer had a decrease in spending power, and purchased more of Good X.
c. The consumer had a decrease in spending power, and purchased less of Good X.
d. The consumer had an increase in spending power, and purchased less of Good X.
Question 4:
What represents the substitution effect due to the change in the price of Good X in Graph 1?
a. T to W
b. T to G
c. G to T
d. W to G
e. G to W
f. W to T
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