HW3 - Q3. John spent a given budget of amount I on two...

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HOMEWORK ASSIGNMENT # 3 Q1. Q2. The price of gasoline has declined since April. Using the standard supply and demand graphs, explain whether each of the following changes can explain such a decline in price. a. The improving labor market has increased income and gasoline is a normal good. b. Many people take long car trips during the summer. c. Increased risk in Iraq, Saudi Arabia and Venezuela (all oil exporting countries) d. The high price of gasoline in April reduced demand. e. Oil refinery plants that were being serviced during the winter were back in operation. f. SUVs have become less popular among “soccer moms”*.
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Unformatted text preview: Q3. John spent a given budget of amount I on two goods, x and y. When the price of x was reduced, John decided to spend more money on y in spite of the fact that both the price of y and the budget had not changed. Discuss each of the statements below and identify whether the statement is true, false, or uncertain. a. The expenditure on x increases. b. The consumption of x may increase. c. Y is a normal good. d. John consumed more y in spite of the fact that the relative price of y is higher. e. If consumption of x increases (in quantity terms), then x is a normal good....
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HW3 - Q3. John spent a given budget of amount I on two...

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