Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied. Furthermore, assume that X is a normal good, Y is an inferior good, and the price of good Y increases. Then, which of the following effects is known with certainty?
A. The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
B. The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y.
C. The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
D. The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good X.
Answer: B
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To increase U.S. energy independence, prices must be lowered on gasoline and electricity.
Answer the following statement true (T) or false (F)
Refer to the information provided in Figure 12.4 below to answer the question(s) that follow.
Figure 12.4There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S0 and D0.Refer to Figure 12.4. Currently in sector Y, price is
A. equal to average cost. B. less than average cost. C. greater than average cost. D. More information is needed to answer the question.