Bag of chips and bottles of salsa are perfect complements for consumer who eats only chips and salsa, but a bottle of salsa costs $1 more than a bag of chips. The income effect of a 50 cent increase in the price of a bag of chips will be fore the consumer to eat fewer chips and less salsa.
Answer the following statement true (T) or false (F)
True
Rationale: When two goods are perfect complements (in a 2-good model), both are normal goods.
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Competitive markets generally give consumers and producers correct incentives when
a. externalities are present in the market. b. property rights are well-defined and enforced. c. the good being produced and consumed is a pure public good. d. there is a substantial lack of information on the part of either buyers or sellers.
If monopolistically competitive firms in an industry are making an economic profit, then:
A. firms will exit the industry and product demand will decrease for the firms that remain. B. firms will exit the industry and product demand will increase for the firms that remain. C. new firms will enter the industry and product demand will increase for the existing firms. D. new firms will enter the industry and product demand will decrease for the existing firms.