his Question: 1 pt 90f 5009 complete) This Test: 50 pts possible To remain in co
ID: 1131378 • Letter: H
Question
his Question: 1 pt 90f 5009 complete) This Test: 50 pts possible To remain in consumer optimum, a price decrease requires Each change in prion has a substitution effect, when the price of a good | Each change in price also has a real nco ne effect when price in consumption. A price increase requires | !nfavor ofhat rolanoty cheaper god. -o consumer In, favor of that relatively cheaper good . the consumer's real purchasing power increases, causing the oonsumer to purchase | | of most goods Assuming that the principle of diminishing marginal utility holds, the demand curve must slope downward | water than damonds, which results in al- | marginal utlity of water compared with the margnal dly of The prioo of water is lower than the price of damonds because people oonsume | diamondsExplanation / Answer
To remain in consumer optimum a price decrease requires increase in consumption and price increase requires decrease in consumption.
Each change in price has substitution effect when the Price of good increases consmuer moves in the favour of relatively cheaper good.(consumer buys relatively cheaper good)
Each change in price has real income effect when price decreases consumers real purchasing power increases causing the consumer more to purchase most of the goods.
The price of water is less than price of diamond because people consume more water than diamond which results in less marginal utility of water than marginal utility of diamond
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