Intermediate Micro

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Intermediate Microeconomics

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If the prices of all goods increase by the same proportion as income what will happen to the quantity demanded of good X ? The quantity demanded of good X would stay the same . It is because the increases in price of any good will not affect the consumer since its income also increases proportional to the increase in price of the goods

The homogenous of degree zero means that all prices and income does not change . Thus , the

demand for an item would not change because it is homogenous of degree zero in all prices and income . Even if the income and the prices change there would be remain to be the same amount of demand or simply , the demand would not change . This goes against the normal notion that demand is relative to the marginal maximization on the consumer 's part

What does the relationship between changes in income and purchase of a good indicate ? After a raise in income , it is indicated that a good is a normal good if its demand go up and if there a reduction in the demand of a good , it would mean the good is an inferior good . If the increase in demand of a good is greater than the increase in income , it is identified as a superior good , a kind of normal good

If income doubles and the quantity demanded of good X more than doubles how will you classify good X ? Good X would be classified as a superior good , which is a type of normal good

When a price increases , what will be the income effect if the good is a normal good ? Since the good is a normal good , it will not be substituted or replaced . The income effect will cause less of the good to be purchased

If an individual buys only two goods and these must be used in a fixed relationship with one another (e .g , coffee and cream for a coffee drinker who never varies the amount of cream used in each cup , what will be the substitution effect if there is a change in the price of coffee ? If the price of coffee falls and more coffee are being sold more cream would be sold . On the other hand , if the price of coffee increases and less coffee are being purchased , less cream would be purchased . This is because coffee and cream are used in a fixed relationship with one another

References

Bumas , L . O (1999 . Intermediate microeconomics : Neoclassical and factually-oriented models . New York : M . E . Sharpe Intermediate Micro PAGE \ MERGEFORMAT 1...