Suppose that steak is a normal good and vegetables are inferior goods. Using a carefully-labeled diagram, illustrate the income-consumption curve that would result from an increase in a consumer's income.
What will be an ideal response?
See Figure 5.10. The consumer is initially consuming V1 units of vegetables and S1 units of steak. An increase in income will cause the budget line to shift out from L1 to L2. The consumer will now choose a bundle containing V2 units of vegetables and S2 units of steak. Connecting the two utility-maximizing bundles gives the income-consumption curve.
You might also like to view...
In the long run, all firms in a perfectly competitive industry
A) earn economic profits. B) break even. C) suffer economic losses. D) sell differentiated products to earn economic profits.
A gold standard pegs the currency to:
A) another nation that also adopts a gold standard. B) a basket of metals: gold, silver, platinum, and palladium. C) the price of gold in local currency. D) the U.S. dollar.
Assume that a painter produces 20 paintings this year and 20 paintings next year. What is the annual change in nominal GPD if the price of paintings rises from $1,000 this year to $1,500 next year? Can you conclude that the economy grew from this year
to next year based on your answer? Why? What will be an ideal response?
Prof. Epstein's normative theory of law argues that the common law ought to
a. promote a more desirable distribution of income. b. impose punitive damages more often. c. seek economic efficiency. d. promote the Good Samaritan ethic.