An increase in the price of a Giffen good makes the people who consume that good better off.
12.Jessica’s preferences for peanut butter and jelly are represented by the utility function U(p, j) ? min?2p, 5j?. If prices and income change, but her old consumption bundle lies somewhere on her new budget line, she will not change her consumption.
13.Jimmy’s utility function is U(a, b) ? ab, where a is his consumption of apples and b is his consumption of bananas. If prices and income change in such a way that Jimmy’s old consumption lies on his new budget line, then Jimmy will not change his consumption bundle.
14.Suppose a consumer has strictly convex preferences and her Engel curve for a good is a vertical line for some range of income. In that same income range, her demand curve for the good slopes down.
15.John purchases two goods, x and y. Good x is an inferior good for some range of income. There must be another range of income for which good x is a normal good.
16.A consumer has the utility function U(x, y) ? x ? 2y1/2. The price of good x is 2 and the price of good y is 1. The consumer’s income is 20. If the price of good y rises to 2, then entire change in demand for y is due to the substitution effect.
17.The Hicks version of the substitution effect of a price change measures the change in a consumer’s demand if the consumer’s income were changed just enough so the consumer would remain on the same indifference curve as before the price change.
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