Show, using utility theory, why a consumer who is initially maximizing her utility will alter her consumption pattern in response to a change in the price of a good.
What will be an ideal response?
If marginal utilities per dollar are initially equal across all goods, a fall in the price of one will raise the marginal utility per dollar consumed on that good. She can increase total utility by allocating more dollars toward that good.
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If a $10 sales tax is imposed on a good and the equilibrium price increases by $10, the tax is
A) split between buyers and sellers but not evenly. B) paid fully by sellers. C) paid fully by buyers. D) split evenly between buyers and sellers. E) perhaps split between buyers and sellers but it is impossible to determine the incidence without further information.
The maximum price that a buyer will pay for a good is called
a. consumer surplus. b. willingness to pay. c. equilibrium. d. efficiency.