ch8
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
Charlie’s utility function is
x
A
x
B
. The price of apples used to be $1 per unit, and the price of bananas $2 per
unit. His income was $40 per day. If the price of apples increased to $2.25 and the price of bananas fell to
$1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of
a.
$62.50.
b.
$126.
c.
$31.25.
d.
$93.75.
e.
$250.
____
2.
Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good
2 per unit of good 1. If a consumer has an income of $720 and if the price of good 2 changes from $8 to $9,
while the price of good 1 stays at $1, then the income effect of the price change
a.
is 9 times as strong as the substitution effect.
b.
does not change demand for good 1.
c.
accounts for the entire change in demand.
d.
is exactly twice as strong as the substitution effect.
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 Spring '09
 AVRINRAD
 Utility, substitution effect. b.

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