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Chapter 6: Q.13 (page 152)

Think back to a purchase that you made recently. How would you describe your thinking before you made that purchase?

Short Answer

Expert verified

I considered my projected future earnings and decided that getting a phone that was the greatest option for me, which is exactly what I was thinking when I purchased the phone.

Step by step solution

01

Definition

Income

The change in an individual's income has the opposite effect on their consumption. Individual households' consumption decisions are heavily influenced by their income.

02

Step 2:Explanation

I recently purchased a phone from a store.

Prior to making the purchase, I considered the fact that I needed a phone because my fashioned one had stopped working. So my demand was based on the necessity of a phone in my life, as well as my personal tastes and preferences, as I have long desired a good phone. There was a financial constraint. I purchased the phone because it was less than or equal to the amount I had set aside for a phone purchase. This purchase was mostly motivated by the value I placed on the phone and my financial constraints.

My budget restriction was to purchase a phone for less than $1000, and I purchased the phone since it was just under $1000.

03

Conclusion

Therefore, it essentially means that if I charge more than $1000, my level of satisfaction will not be met.

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Most popular questions from this chapter

Would you expect the marginal utility to rise or fall with the additional consumption of a good? Why?

Marge buys pizza for \(10 and Pepsi for \)2. She has income of \(200. Her budget constraint will experience a parallel outward shift if.

a. the price of pizza falls to \)5, the price of Pepsi falls to \(1 and her income falls to 100.

b. the price of pizza rises to \)20, the price of Pepsi rises to \(4 and her income remains the same.

c. the price of pizza falls to \)8, the price of Pepsi falls to \(1 and her income rises to \)240.

d. the price of pizza rises to 20, the price of Pepsi rises to \(4 and her income rises to \)500.

Homer buys pizza for \(10 and Pepsi for \)2. He has income of \(100. His budget constraint will shift inward if.

a. the price of pizza rises to \)12.

b. the price of Pepsi falls to \(1

c. his income rises to \)150

d. the price of pizza, the price of Pepsi and his income all rise by 50 percent.

Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?

If Edma buys more pasta when the price of pasta increases, we can infer that for Edma

  1. pasta is a normal good when the income effect exceeds the substitution effect.

  2. pasta in a normal good for which the substitution effect exceeds the income effect.

  3. pasta is an inferior good when the income effect exceeds the substitution effect.

  4. pasta in an inferior good for which the substitution effect exceeds the income effect.
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