Question 1 (12 points) For each of the following assertions, please indicate whe

Question

Question 1 (12 points) For each of the following assertions, please indicate whether they are true or false. No credit will be given without an explanation as to why your claim is correct. a. (4 points) Assertion: The level of utility (weakly) increases as an individual moves downward along the demand curve b. (4 points) The income effect for a good following a price change is negative. Assertion: This good must be an inferior good (at the current income). c. (4 points) Homer likes and buys only beer and donuts. For Homer, beer is a Giffen good (at his current income). Assertion: Beer and donuts must be complements for Homer (at his current income).

Explanation / Answer

a)

This is True Statement:

Moving downward along the demand curve signifies fall in price level. Fall in price level causes rightwards shift in budget line that helps to touch higher indifference curve. thus utility rises.

b)

This is true statement:

Income effect is negative for inferior good. Rise in income lead to fall in demand for inferior good.

c)

Income effect positive for normal good and negative for Giffin good. Similary, rise in price leads to fall in demand for normal good while opposite is true for giffin good.

Complement goods moves in same direction, hence this is not possible in such scenario.

Hence, This False statement.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.