Substitution and income effects of an increase in the price

Assignment Help Business Economics

Reference no: EM13887747

Suppose that when the price of X goes up, you respond by consuming less Y .

a) Illustrate the substitution and income effects of an increase in the price of X. How does your graph illustrate the information in italics above?

b) Is Y a normal good or an inferior good? Carefully explain how you can tell.

c) Looking at the effects on your consumption of Y, which is bigger—the income effect or the substitution effect? Carefully explain how you can tell.

Please be sure to note that parts (b) and (c) ask about Y, not X.

Reference no: EM13887747

Questions Cloud

His profit-maximizing output level and maximum profit : A monopolists average revenue function is AR(Q) = 20−30Q and his total cost function is C(Q) = 20Q2. Find: His total revenue function. His profit-maximizing output level and maximum profit.

Is behavior consistent with model of maximizing behavior : When prices are (p1;p2) = (1;2) a consumer demands (x1;x2) = (1;2), and when prices are(p1;p2) = (2;1) the consumer demands (x1;x2) = (2;1). Is this behavior consistent with the model of maximizing behavior?

Long run monopolistic competition is inefficient because : It has been argued that in the long run monopolistic competition is inefficient because

Suppose frank is a monopolist in the garden gnome market : Suppose Frank is a monopolist in the garden gnome market and is producing his profit-maximizing level of output. Suppose further that at this level of production his average total cost is $150, his average variable cost is $130, and the price of one ..

Substitution and income effects of an increase in the price : Suppose that when the price of X goes up, you respond by consuming less Y . Illustrate the substitution and income effects of an increase in the price of X. How does your graph illustrate the information in italics above? Is Y a normal good or an inf..

Is it possible to tell in which month you are happier : In April, eggs cost $2 per dozen, wine costs $1 per bottle, your income is $120, and you buy 50 dozen eggs. In May, eggs cost 50 cents per dozen, wine still costs $1 per bottle, and your income is $60. Is it possible to tell in which month you are ha..

Determine whether bob and ray have identical tastes : Bob and Ray buy only two goods, ice cream and root beer. They both get their root beer at Root Beer City, where they pay $1 a bottle. Bob is indifferent between the baskets (1, 3) and (2, 2). Ray is indifferent between the baskets (2, 2) and (3, 1). ..

Widgets are supplied by a competitive constant-cost industry : Widgets are supplied by a competitive constant-cost industry. On Monday, the industry is in both short-run and long-run equilibrium. On Tuesday, the demand for widgets increases and the industry moves to a new short-run equilibrium. On which day or d..

What is the present discounted value of receiving : What is the present discounted value of receiving $100 right now, $200 in one year, and $500 in five years? Show your work, and assume r=10%. What is the present discounted value of receiving $100 right now, $500 in one year, and $300 in two years? S..

User Account

All Pages