When the price of a good falls and the prices of other goods and a consumer's income remain the same, explain what happens to the consumption of the good whose price has fallen and to the consumption of other goods
What will be an ideal response?
When the price of a good falls, the marginal utility per dollar for that good increases. The marginal utility per dollar for other goods does not change. To maximize total utility, a consumer makes marginal utility per dollar equal for all goods, so the consumer buys more of the good that has experienced the fall in price and less of the goods whose marginal utilities per dollar have not changed.
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In a two-period model, holding everything else constant, an increase in future taxes
A) unambiguously increases the current account surplus. B) unambiguously decreases the current account surplus. C) has an uncertain effect on the current account surplus. D) has no effect on the current account surplus, as long as Ricardian equivalence holds.
How would a decrease in consumer income affect the market for lawn mowers?
a. Demand would decrease, leading to an increase in price and a reduction in quantity sold. b. Demand would decrease, leading to a reduction in price and a reduction in quantity sold. c. Demand would increase, leading to an increase in price and an increase in quantity sold. d. Demand would increase, leading to a reduction in price and an increase in quantity sold.