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), then:
a. there is no substitution effect from a change in the price of coffee.
b. there is no income effect from a change in the price of coffee.
c. Giffen's Paradox must occur if both coffee and cream are inferior goods.
d. an increase in income will not affect cream purchases.
a
You might also like to view...
Assume there is a decrease in the supply of a product produced in a perfectly competitive market. All else constant, in the short run this will cause the profits of firms that produce substitutes for the good in question to increase
Indicate whether the statement is true or false
Which of the following will increase the price needed to break even?
a. A decrease in overall fixed costs b. A decrease in the marginal costs c. An increase in fixed costs d. An increase in the level of production
Compare a direct pollution tax on automobile travel with a tax on gasoline. The gasoline tax is:
A. less effective than a direct pollution tax. B. more effective than a direct pollution tax. C. just as effective as a direct pollution tax. D. either more or less effective than a direct pollution tax depending on enforcement levels.
If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely
A) shift rightward. B) shift leftward. C) remain unchanged. D) become steeper.