Eco_1_Problem_Set_6_Akey

Eco_1_Problem_Set_6_Akey - trade-off between the cost of...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Eco 1 Spring 2007 Problem Set 6 Answer Key 1) Textbook (Review) questions 9-2.3 and 9.24: 9-2.3: Considering only the income effect, the decrease in price would increase purchasing power, thereby lowering demand for the good. In reality the substation effect also has an impact, though – this does not mean demand curves slope upwards. The law of demand still applies. 9-2.4: As above. The decrease in price decreases demand, via the income effect; however the decrease in price increases the demand, via the substitution effect. 2) Textbook (Problem) questions 9A.4 and 9A.5:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Eco 1 Spring 2007 Problem Set 6 Answer Key
Background image of page 2
Eco 1 Spring 2007 Problem Set 6 Answer Key 3) Textbook (Problem) question 9-4.7: The ticket price is a sunk cost. Mssr. Neyer should only be considering the marginal
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: trade-off between the cost of moving (worse view) and the benefit (no skin cancer). Evaluation: Neyers reasoning is bad. Eco 1 Spring 2007 Problem Set 6 Answer Key 4) First: no, this did not require knowledge of the Budget Constraint. Consider the following: (i) No. If she were consuming optimally, the ratio of the prices (1/3 or 3, depending upon how you chose your axes) would equal the ratio of the marginal utilities (1/2 or 2, etc.). Since it does not, we know Jane is not consuming optimally (ii) Based upon my drawing, Jane should consume less Milkshakes and more Hamburgers. She will end up at a higher Indifference Curve (meaning greater Total Utility), where the ratio of the prices will equal the MRS....
View Full Document

This homework help was uploaded on 04/09/2008 for the course ECON 001 taught by Professor Caseyquinn during the Spring '08 term at Lehigh University .

Page1 / 4

Eco_1_Problem_Set_6_Akey - trade-off between the cost of...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online