Demand functions are “homogeneous of degree zero in all prices and income.” This

Question

Demand functions are “homogeneous of degree zero in all prices and income.” This means

a.                     a proportional increase in all prices will leave quantities demanded unchanged.

                        b.         an increase in income will not alter consumption decisions.

                        c.         prices directly enter individuals’ utility functions.

                        d.         an increase in income will cause all quantities demanded to increase proportionately.

            e.         none of the above

a.                     a proportional increase in all prices will leave quantities demanded unchanged.

                        b.         an increase in income will not alter consumption decisions.

                        c.         prices directly enter individuals’ utility functions.

                        d.         an increase in income will cause all quantities demanded to increase proportionately.

            e.         none of the above

a.                     a proportional increase in all prices will leave quantities demanded unchanged.

                        b.         an increase in income will not alter consumption decisions.

                        c.         prices directly enter individuals’ utility functions.

                        d.         an increase in income will cause all quantities demanded to increase proportionately.

            e.         none of the above

Explanation / Answer

the answer is (a.) a proportionate increase in all prices will leave quantities demanded unchanged

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