Questions 6 (Demand). When the price of x1 is $8 and the price of x2 is $5, Jenny consumes 20 units of x1 and 10units of x2. Suppose that when the price of xX2 increases to $7, Jenny consumes 25 units of x1.a) What type of goods are x1 and x2?b) How many units of x2 does Jenny consume after its price increases? Hint: Calculate her income with thefirst allocation of goods.Questions 7 (Slutsky Equation and Consumer Surplus). Robert's utility function for x and xa is:

Answer a) In the given question the increase in the price of goods X2 has to lead to an increase in…

Answered: Questions 6 (Demand). When the price of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5
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?
I understand the substitution effect, but I really need to understand the Income effect. Please explain that and thank you in advanced ?
6. The figure below shows a consumer maximizing utility at two different prices (the left panel) and the consumer's demand for good X at the same two prices of good X (the right panel). The price of good Y is $4.50. When the price of X increases from point S to point R along the demand curve, the substitution effect of the price increase is and the income effect is Quantity of Y 60 48 B A 18 24 - Quantity of X Price of X 6 R S 24 Demand for X Quantity demanded of X Qa
3. In the following graph the consumer begins in equilibrium with an income of $3,600, facing prices of P₁ = $60 and Py = $36. Quantity of Y 100 75 a. In equilibrium, 20 b. In the new equilibrium,_ 38 48 60 Now let the price of X fall to $30. e. Good X is a(an). units of X are consumed. Quantity of X c. To isolate the substitution effect, $_ consumer. units of X are consumed. d. The total effect of the price decrease is The income effect is good. 90 20 must be taken away from the The substitution effect is
2. Muhammad's demand for fresh fish is perfectly income inelastic, and his income increases. If Muhammad's preferences for fish are well-behaved, show the effect of this increase in income on the change in his optimal choice of fresh fish, his expenditure on all other goods, and draw his income-consumption curve. Clearly label your graph.
Question 4 (Figure: Demand for Tuna Sandwiches) The graph shows Beatriz's weekly demand for tuna sandwiches. Tuna Sandwiches Price per sandwich $165 $12 $8 $4 0 Beatriz's individual demand curve Quantity of sandwiches (per week) If she orders three tuna sandwiches per week, what can we infer? The price of a tuna sandwich is no higher than $4. Beatriz's demand for tuna has shifted. O For Beatriz, tuna sandwiches are a normal good. O For Beatriz, tuna sandwiches are an inferior good.
Figure: Leonard's Demand for Pecan Pie) Look at Leonard's weekly demand curve for slices of pie. How many slices of pie is Leonard willing to buy at $3 per slice
A4
5. The elasticity of substitution will be a lower number: (a) The less curved is the indifference curve (b) The more curved is the indifference curve (c) The greater the income elasticity of demand of the good on the horizontal axis (d) The greater the degree of substitutability between the two goods (e) If tastes are both homothetic and quasilinear
None
Figure: Demand for Coconuts Price of coconuts E A D3 B D1 C D2 Quantity of coconuts Use Figure: Demand for Coconuts. If coconuts are a normal good and the income level of consumers falls, it will be represented in the figure as a: shift from D1 to D2 movement from point B to point C shift from D1 to D3 movement from point A to point

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