When the price of a good falls and the prices of other goods and a consumer's income remain the same, explain what happens to the consumption of the good whose price has fallen and to the consumption of other goods

What will be an ideal response?


When the price of a good falls, the marginal utility per dollar for that good increases. The marginal utility per dollar for other goods does not change. To maximize total utility, a consumer makes marginal utility per dollar equal for all goods, so the consumer buys more of the good that has experienced the fall in price and less of the goods whose marginal utilities per dollar have not changed.

Economics

You might also like to view...

The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:

A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.

Economics

A monopolist faces a demand curve Q = 120 - 2p and has costs given by C(Q) = 20Q + 100

a. Write the monopolist's profits in terms of the price it charges. b. Use the derivative (w.r.t. price) to determine the monopolist's profit-maximizing price. c. Now, derive the monopolist's inverse demand based on the demand equation above. Write out the monopolist's profits in terms of quantity. d. Use the derivative w.r.t. Q to determine the monopolist's optimal quantity. What price does the monopoly charge?

Economics

A country who has a trade deficit:

A. imports less than it exports. B. has a negative trade balance. C. sells more goods at home than it sells abroad. D. requires more trade in order to solve a budgetary deficit.

Economics

Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production

a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

Economics