226 325 424 463 What is the MPL when the number of professor increases from 1 to

Question

226 325 424 463 What is the MPL when the number of professor increases from 1 to 3? QUESTION 12 The optimal amount of x1, x2. P1. P2 and income are given by the following: 41 21 x2-? The original prices are: P1 45 P2 46 The original income is: I =1,727 The new price of P1 is the following: P1-74 Assume that the price of x1 has changed from P1 to P1: What is the income effect? QUESTION 13 The optimal amount of x1,x2. P1, P2 and income are given by the following: 41 21 Click Save and Submit to save and submit. Click Save All Answers to save all answers.

Explanation / Answer

Income effect shows the change in quantity demanded due to the change in income of consumer. A change in price of good or service changes the purchasing power or money income of consumer and thus leads to a change in quantity demanded of that particular good or service.

In above question, prices of X1 has changed from P1 to P1' that is increased from 45 to 74 with same income level that is $1,727. So, due to the income effect that is increased prices reduces the purchasing power or money income to buy same level of X1. Hence, income effect results in fall in the quantity demanded of X1 from 25 ( P1=45) to 15 (P1= 74).

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