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A good graphical representation of functional utility is shown below.
Marginal rate of substitution represents the rate at which customers are ready to give up one commodity in order to exchange while ensuring a same level of utility. MRS varies with points along the indifference hence it is vital to keep locally in the definition. In addition, MRS of a commodity X is equivalent to the marginal utility of X over the marginal utility of Y.
a. An increase in the price of a normal good: This had direct effect of changes in income on consumption choice. In this case, consumers buy more goods when their income rises as the prices remain fixed in the market.
In this case, a change in the income of the buyer causes the demand curve to shift. This is evident through a negatively sloped demand curve to counter the space in the exhibit. Therefore, the increase in demand causes an increase in demand and a shift to the right of the demand curve for living space.
b. A decrease in the price of an inferior good: In the market, a decrease in the prices of such goods leads to increase in the equilibrium quantity demanded. Therefore, the substitution effect would force the consumer to buy more of the good.
c. An increase in the price of a Giffen good: In economics, an increase in the prices of Giffen good increases the quantity of the good that is demanded in the market. This results to an upward sloping demand curve due to interactions of the income and substitution effects. The income effect can be positive or negative when the price of these goods
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Point “a” does not represent an efficient allocation of factor of production. To see this, consider a point like ‘b’ in the same graph shown below. It provides the same level of output of good X as point “a” since we still are on the same X isoquant, but the production of Y has increased since now we are on a higher Y isoquant. Similarly, we could have picked a point on the Y isoquant through point “a” which is tangent to a higher X isoquant.
This means that she has to sacrifice the opportunity of producing 50 pigs if she wants to produce 200 pounds of corn per year. But if she choose to produce pigs, the opportunity cost that she will incur will be 4 pounds of corn (200 pound of corn/50 pigs).
Therefore, eliminating taxes would prevent the government from reaching its desired revenue targets and this would result in a deficit between what the government spends and what it collects. Ans 2) A private good is one that is excludable in nature and is unique for every consumer.
However, when the price of a gallon of paint increased to $3.50, his usage decreased to 20 gallons. The exercise aims to introduce the concept of elasticity by illustrating how the demand for a product will decrease if the price is increased. In the example, one observes that the demand for paint is elastic because it is sensitive to price changes.
It talks about how an over-supply of cars has effected the marketplace in Europe.
There is little question that the changing global business environment has a major impact on both the market for automobiles and the structure of the automobile industry. For a
There can be two possible explanations of this rise and fall in the prices of the butter. First could be the direct result of the changes in the supply and demand of butter in the market. If supply of butter in the market is decreasing, its prices will start
Similarly if he spends his entire budget on food then he will be able to consume 0 unit of water and 4 unit of food. The table below shows that how the consumer is able to allocate his budget on food and water.
us, as beef price increases and since the customers are price sensitive, the demand will decrease as the consumers will resort to consuming chicken since they lower priced. The consumers will thus reduce consumption of beef and increase consumption of chicken.
The supply of
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