7. UYGULAMA DERSÝ SORULARI_29-30.11.2010 -...

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SD _2010-2011/7 ISL233-M İ KRO İ KT İ SAT-UYGULAMA DERS İ -7 29-30.11.2010 28. If the marginal rate of substitution is infinite or zero, show that the substitution effect of a price change for a good is zero. 30. The following data pertain to products A and B, both of which are purchased by Madame X. Initially, the prices of the products and quantities consumed are: $10, = A P 3, = A Q $10, = B P 7. = B Q Madame X has $100 to spend per time period. After a reduction in price of B, the prices and quantities consumed are: $10, = A P 2.5, = A Q $5, = B P 15. = B Q Assume that Madame X maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Madame X to put her back on the original indifference curve, she would consume this combination of A and B: 1.5, = A Q 9. = B Q a. Determine the change in consumption rate of good B due to (1) the substitution effect and (2) the income effect. b. Determine if product B is a normal, inferior, or Giffen good. Explain. 34. The world demand for power transmission wire is made up of both domestic and foreign demands. Thus, the total demand is the sum of the two sub-demands, which are given as: Domestic demand: Pd = 5 - 0.005Qd Foreign demand: Pf = 3 - 0.00075Qf, where Pd and Pf are in dollars per pound, and Qd and Qf are in pounds per day. a.
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This note was uploaded on 02/01/2012 for the course ECON 101 taught by Professor Meonk during the Spring '11 term at Abu Dhabi University.

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7. UYGULAMA DERSÝ SORULARI_29-30.11.2010 -...

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