Please help me to solve the true or false questions with reasons. 1.Suppose the
ID: 1107733 • Letter: P
Question
Please help me to solve the true or false questions with reasons.
1.Suppose the only goods you consume are apples and peaches. One day the price of apples goes up and the price of peaches goes down, and you find that you can still afford to buy the same combination of peaches and apples that you were buying all along. The price changes leave you neither better nor worse off. (True/False/Uncertain)
2.Suppose the price of X goes up and a consumer goes on consuming the exact same amount of X as before. Then X cannot be an inferior good.
(True/False/Uncertain)
Explanation / Answer
1.) — the price change leaves you neither better nor worse— true because since even after the price Apple went up and the price of peaches went down , the two goods that a consumer is consuming and within his original budget constrant which he hi following before the price change with that budget he is able to buy the same amount of apples and peaches he was buying prior to the price change his utility derived from the consumption within his budget constraints is not getting affected after the price changes , it is same for the consumer to be rational his utility bundle is not getting affected .
2.)— true ‘x’ cannot be a inferior good here is the person are consuming it in the same way after the prices of x have increased. Because when the price of a inferior good rises there is a negative income effect , and it will work in the opposite direction i.e. the income effect due to price change will worl in the opposite direction to substitution effect . Therefore x cannot be a inferior good rather it can be a normal good or a good like salt or medicine that has a inelastic demand despite of price changes beacuse these goods are required daily and are useful without them one cannot survive .