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Chop

This document provides instructions for answering questions about consumer equilibrium when income and prices change. It includes 4 scenarios where income changes and consumption of a normal good X and inferior good Y are predicted to increase or decrease. It also includes setting up a budget line equation for a consumer with $600 to spend on goods X and Y that cost $10 and $40 respectively.

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Keisha Mae
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132 views2 pages

Chop

This document provides instructions for answering questions about consumer equilibrium when income and prices change. It includes 4 scenarios where income changes and consumption of a normal good X and inferior good Y are predicted to increase or decrease. It also includes setting up a budget line equation for a consumer with $600 to spend on goods X and Y that cost $10 and $40 respectively.

Uploaded by

Keisha Mae
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment Chapter 4

Direction: Read and analyze each questions carefully and answer the
following questions on the space provided.
A. A consumer must spend all of her income on two goods (X and Y). in
each of the following scenarios, indicate whether the equilibrium
consumption of goods X and Y will increase or decrease. Assume good
X is a normal good and good Y is an inferior good.
1. Income doubles

The consumption of good X will increase and, consequently, the consumption of


good Y will decrease.

2. Income quadruples and all prices double

Since the increase in income is still more than the increase in prices, the results
would be the same as the previous scenario. There will be an increase in the
consumption of good X while the consumption of good Y decreases.

3. Income and all prices quadruple

Since the increase in income and prices are the same, consumption would stay the
same.

4. Income is halved and all prices double

The consumption of good X will decrease and, consequently, the consumption of


good Y will increase.

B. A consumer must divide $600 between the consumption of product X


and Y. The relevant market prices are Px = $10 and Py = $40
5. Write the equation for the consumers budget line
−10 −1 600
10x + 40y = 600 = = 15
40 4 40
−1
Y = 15 - x
4

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