If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then
a. there is no substitution effect from a change in the price of coffee.
b. there is no income effect from a change in the price of coffee.
c. Giffen's Paradox must occur if both coffee and cream are inferior goods.
d. an increase in income will not affect cream purchases.
a
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Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?
A) If the money supply grows at a faster rate than real GDP, there will be inflation. B) If the money supply grows at a slower rate than real GDP, there will be inflation. C) If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. D) If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP.
Refer to Figure 10-2. Which of the following statements is true?
A) Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. B) Points a and b are derived independently of the utility-maximizing model. C) Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream. D) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes.