How can the utility-maximizing rule be used to explain the substitution and income effect?
Please provide the best answer for the statement.
According the utility-maximizing rule, when the price of a product decreases, the consumer will no longer be in equilibrium. Equilibrium will only be restored when more of the product is purchased and the marginal utility of the product decreases to match the decline in price. The consumer will purchase or substitute this now cheaper product for the relatively more expensive substitute. The income effect is shown by the fact that a decrease in price increases the real income of the consumer. Thus, the consumer can purchase more of this product and other products until equilibrium is achieved for the new level of real income.
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Among the problems associated with subsidizing an industry in the hope of establishing a worldwide monopoly is that if two nations subsidize firms in the same industry, each could lose money
Indicate whether the statement is true or false
If disposable income is $400 billion, autonomous consumption is $60 billion, and MPC is 0.8, what is the level of saving?
a. $20 billion. b. $210 billion. c. $380 billion. d. $590 billion. e. $780 billion.
The value of a model is determined by
A. the usefulness of its predictions in the real world. B. the realism of its assumptions. C. the extent of the profit earned by applying it. D. the model's attention to real world details.
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
A. Pyrotex cannot increase its profits by changing the price of fireworks. B. Pyrotex will surely increase its profits by decreasing the price of fireworks. C. Pyrotex will surely increase its profits by increasing the price of fireworks. D. Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.