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Unformatted text preview: Christine Drews Econ 302 Toossi Section 2 Problem set 6 8/29/2008 Questions for Review 7. When demand is elastic, total expenditure changes in the opposite direction from a change in price. When demand is inelastic, total expenditure and price both move in the same direction. At the midpoint of the demand cure, total expenditure is at a maximum. 13. False. The amount of money spent on one good may either rise or fall when the price of the other good rises. Consumption of the now more expensive good will fall with the increase in price, but the consumption of the price-constant good will not change the same way for every change in the price of the other good. Depending on where the indifference curve intersects the new budget constraint, the consumption of the good will rise or fall. 14. False. If the price of tennis balls increases, Mike will definitely consume less tennis balls. However, the consumption of tickets will not necessarily rise. Depending on where the indifference curve intersects the new budget line, the new optimal bundle can see either a rise or fall in the consumption of tickets. 16. No, butter cannot be inferior as well. For any consumer, it is a matter of simple arithmetic that not all goods can be inferior. After all, when income rises, it is mathematically impossible to spend less on all goods at once. If I were to spend less on bread as my income rose, then I would have to spend more on butter, making it a normal good....
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- Spring '08