HW2 - Jessica Dietz UTEID: JAD2793 ECO 304K February 19,...

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Jessica Dietz UTEID: JAD2793 ECO 304K February 19, 2008 Homework 2 Question 1: a. b. This income effect is greater for Ryan for hair gel because it agrees with the overall quantity change. We also know that the income effect is greater because since we are told that the goods are complements, it is a rule that IE>SE for the good whose price didn’t change and since the price of mouthwash changed and the price of hair gel did not change and stayed the same the income effect is greater for hair gel.
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Question 2: a. There is a shift in our graph on the demand curve because the information about applesauce decreasing cancer risks is good news. Since the information is good news the demand for applesauce will increase because consumers will go out and buy more applesauce so that their risk of cancer decreases. That is why our demand curve shifts up and we can see that because it shifts up, the price and quantity of applesauce also shifts up. b.
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This note was uploaded on 03/20/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.

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HW2 - Jessica Dietz UTEID: JAD2793 ECO 304K February 19,...

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