Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 4.3, Problem 2ST
To determine
The validity of the given statement.
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The income of consumer has got increased and the consumer's demand for good X has also increased.
What type of good is good X?
3. Determinants of demand
The following graph shows the demand curve for sedans (for example, Toyota Camrys or Honda Accords) in New York City. For simplicity, assume that
all sedans are identical and sell for the same price. Initially, the graph shows market demand under the following circumstances: Average household
income is $50,000 per year, the price of a subway ride is $2.00 per ride.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
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Demand for Sedans
Demand for Sedans
40
I Price of a sedan
(Thousand of
dollars)
20
Quantity
Demanded
450
30
(Sedans per month)
Demand Shifters
Average Income
(Thousands of
dollars)
50
Demand
10
Price of Subway
(Dollars per ride)
2
100 200 300 400 500 600 700 800 900
QUANTITY (Sedans per month)
PRICE (Thousands of dollars per…
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- Suppose goods A and B are substitutes. If the price of good A increases, will the demand for good B increase or decrease?arrow_forward“Owen saw that the price of peaches had gone down, and so he decided to buy more peaches.” Based on this information, what does Owen's reaction reflect? Explain.arrow_forwardTrue/False? Briefly explain. Assume good x is a normal good. In terms of consumer behavior, a cash grant and a small (relative to the initial consumption of x) limited non-matching grant on good x (with the limit that is equal to the cash grant) are essentially equivalent.arrow_forward
- Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese. If the total cost of x units of cocoa is x2, the price of cheese is $8, and Casper's income is $174, how many units of cocoa will he consume?arrow_forwardWhat is the difference between good x as a function of price and income and good x as a function of price and utility?arrow_forwardi need the answer quicklyarrow_forward
- 3. Determinants of demand The following graph shows the demand curve for sedans (for example, Toyota Camrys or Honda Accords) in New York City. For simplicity, assume that all sedans are identical and sell for the same price. Initially, the graph shows market demand under the following circumstances: Average household income is $50,000 per year, the price of a gallon of gas is $4.00 per gallon. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Demand for Sedans Demand for Sedans 40 I Price of a sedan 15 (Thousand of dollars) Quantity Demanded 563 (Sedans per month) Demand Shifters Average Income (Thousands of dollars) 50 Demand 10 Price of Gas 4 (Dollars per gallon) 100 200 300 400 500 600 700 800 900 QUANTITY (Sedans per month) PRICE (Thousands of dollars per…arrow_forwardCinnamon Toast Crunch cereal and Trix cereal are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Cinnamon Toast Crunch cereal increases, we would seearrow_forwardThe law of demand states that as product’s price increases, its quantity demanded decreases, assuming other factors remain constant or ‘ceteris paribus’. Why is it necessary to assume that other factors remain constant?arrow_forward
- Inferior goods are affordable substitutes for more expensive goods. Which of the following is an example of someone purchasing an inferior good? Tom saved his money for an entire year so that he could buy the nicest car on the lot. Susan decided to buy her favorite pasta, rather than the store-brand pasta that she usually purchases. Sam had to stay within his budget, so he decided to buy generic toaster pastries instead of his favorite brand-name pastries. Jennifer earned a bonus at work, so she decided to go out to dinner at a fancy restaurant.arrow_forwardb) Briefly answer the following questions i. What is the micro impact of a significant rise in average Nairobi house prices? Why is the law of diminishing marginal utility a psychological aspect?arrow_forwardRecall that Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese. If the total cost of x units of cocoa is x2, the price of cheese is $8, and Casper's income is $184, how many units of cocoa will he consume?arrow_forward
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