2. Marsha Mellow is very flexible. She consumes and y. She says, ?Give me r or g

Question

2. Marsha Mellow is very flexible. She consumes and y. She says, ?Give me r or give me y, I don?t care. I can?t tell the difference between them.? She is currently endowed with 14 units of a and 6 units of y. The price of r is 3 times the price of y. Marsha can trade r and y at the going prices but has no other source of income. How many units of y wll Marsha consume? a. 48 c. 45 d. 3 e. 23 3. If at current prices, the demand for a good is price elastic, then for move ments along the demand curve, a. increasing the price will increase revenue b. increasing the quantity sold will increase revenue c. decreasing the price will decrease revenue. d. increasing the quantity sold will decrease revenue e. More than one of the above statements are true

Explanation / Answer

2

Price of x(Px) = 3* Price of Y(Py)......... Equation 1

Endowmwment for Marsha is 14 units of x & 6 units of y

Hence She can trade 14 units of x for Price of x (Px)

14*Px will be the revuene genearated in a trade.That is nothing but from equation 1

14*(3* Py)=42 Py which means she can buy more 42 units of y out of it

Hence 42+ intial endowmwnt of 6= 48

Answer is a

3 Correct answer is b as Increase in quantity sold will increase the revenue.

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