Answer the following statements true (T) or false (F)
1. The elasticity of savings with respect to interest rates is the percentage change in the quantity of savings divided by the percentage change in interest rates.
2. The cross-price elasticity of demand is the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B.
3. The general rule stating that the utility-maximizing choice between consumption goods occurs where the marginal utility per dollar is the same for both goods can be shown with this equation:
4. The typical response to higher prices is that a person chooses to consume less of the product with the higher price. This can occur either because of substitution effect or because of income effect, but not both.
1. True
This statement is true. The elasticity of savings with respect to interest rates is the percentage change in the quantity of savings divided by the percentage change in interest rates.
2. True
This statement is true. The cross-price elasticity of demand is the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B.
3. True
This statement is true. The general rule stating that the utility-maximizing choice between consumption goods occurs where the marginal utility per dollar is the same for both goods can be shown with this equation:
4. False
This statement is false. The typical response to higher prices is that a person chooses to consume less of the product with the higher price. This occurs because of substitution effect or income effect, which can occur simultaneously.
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