Show, using utility theory, why a consumer who is initially maximizing her utility will alter her consumption pattern in response to a change in the price of a good.
What will be an ideal response?
If marginal utilities per dollar are initially equal across all goods, a fall in the price of one will raise the marginal utility per dollar consumed on that good. She can increase total utility by allocating more dollars toward that good.
You might also like to view...
The most volatile component of GDP over the business cycle is
a. consumption. b. net exports. c. investment. d. government purchases.
Employers choose to offer efficiency wages because:
A. it has proven to make workers more productive. B. they give employees an incentive to work hard to keep their jobs. C. it will reduce turnover, saving the employer time and money to hire and train new workers. D. All of these are true.
Falling output, in the short run, could be due to:
A. an increase in short-run aggregate supply. B. a reduction in aggregate demand. C. an increase in long-run aggregate supply. D. an increase in aggregate demand.
A network effect arises whenever
A) firms in an oligopolistic industry engage in limit pricing. B) firms in an oligopolistic industry engage in a zero-sum game. C) a consumer's willingness to purchase a good or service is influenced by how many others also buy or have bought the item. D) a producer's willingness to produce a good or service is influenced by how many other firms also produce or have produced the item.