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&quot;econ41502-18

# &quot;econ41502-18 - Consumer Theory In Class Review...

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Consumer Theory – In Class Review Exercise Economics 415 Spring 2010 Mary’s preferences over baskets of two goods, good X and good Y, are partially depicted in the graph below: The income Mary has to devote to consumption of goods X and Y equals \$1200. The price of good X is current \$75/unit and the price of good Y is \$300/unit. 1. The relative price of good X in terms of good Y is _______ units of Y per unit of X. 2. Mary maximizes her satisfaction by consuming ______ units of X and _____ units of Y. 3. Suppose the price of good Y falls to \$75 per unit. The substitution effect of this fall in the price of good Y equals a change in quantity demanded of Y equal to ______ units. The income effect of this fall in the price of Y equals a change in quantity demanded of Y equal to ______units. The change in quantity demanded of Y brought about by this fall in price equals ______ units. 4. The change in quantity demanded of good X caused by the fall in price of good Y to \$75/unit equals ______ units. We can conclude that Mary considers goods X and Y to be ________ goods.

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