Answer the following statements true (T) or false (F)
1. The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.
2. Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.
3. If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the MU/P of X will decrease.
4. The budget line shows all the combinations of two products which the consumer can buy, given money income and product prices.
5. If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.
1. TRUE
2. FALSE
3. FALSE
4. TRUE
5. TRUE
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The above table gives the market demand and market supply schedules for soda. What is the maximum price consumers are willing to pay for the 400th can of soda?
A) $0.80 per can B) $0.70 per can C) $0.60 per can D) $0.50 per can
If a product has very few substitutes, demand elasticity is likely to be
A) 1. B) elastic. C) infinitely elastic. D) inelastic.