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Homework answers / question archive / Which of the following statements is correct?   a

Which of the following statements is correct?   a

Economics

  1. Which of the following statements is correct?
 

a.

If the income and substitution effects of a price change for good x move the quantity demanded of good x in the same direction, then x is an inferior good.

 

b.

If the income and substitution effects of a price change for good x move the quantity demanded of good x in opposite directions, then x is a normal good.  

 

c.

If the income and substitution effects of a price change for good x move the quantity demanded of good x in opposite directions and the income effect of the price change is greater than its substitution effect, then x is a Giffen good.

 

d.

b and c both

  1. Consider a compensated (Hicksian) demand function. Which of the following statements is correct about a demand curve graphed from this demand function?
 

a.

Along this demand curve, the level of utility is held constant and the level of income changes. Consequently, movements along this demand curve illustrate only substitution effects of price changes.

 

b.

Along this demand curve, the level of utility changes and the level of income is held constant. Consequently, movements along this demand curve include both substitution and income effects of price changes

 

c.

Along this demand curve, both the level of income and utility are held constant. Consequently, movements along this demand curve illustrate only substitution effects.

 

d.

Along this demand curve, both the level of income and utility change. Consequently, movements along this demand curve include both substitution and income effects of price changes.

Refer to figure 1. Goods x and y are: Figure 1: Quantity of y 1 1. Y1 yo U U. ?? ?1 Quantity of x a. gross and net complements b.gross complements but net substitutes c. gross and net substitutes d.gross substitutes but net complements. 

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