This is a homework for Advanced Microeconomics, please I need the answer for them to prepare for final (which is coming next week), any one, please help. They don't have to be really long explanation, just some graphs and simple explanation will do. Thanks!ECN 100 – Homework #3
This homework covers the essentials of Chapter #3 in the textbook and the associated
A basic notion in micro-economics is that Demand Exists
– that is, we
all desire to consume products at some level and at some lifestyle.
Some people strive to
consume a lot.
Others strive to, or must, live lives with less consumption.
But even the
most simple of lives depend on the acquisition and use of some goods (like, say, food and
antibiotics), so as I say – Demand Exists
. In this homework, we look the basic theory and
issues behind the notions of consumer demand curves.
What does “homogeneity” of demand mean?
If the prices of all goods rises by 10% and
you get a 10% income raise, what happens to your “real” income and purchasing power.
If you were to represent this situation on an indifference map as you consumed goods X
and Y, how would you show it?
You consume two goods, X and Y.
You really prefer X to Y.
Also for you Y is an Inferior
X is a Normal good.
Starting from an initial position of equilibrium, you face a
sudden rise in income.
Go re-establish a new equilibrium.
How would you represent all
of this on your indifference map?
You are in equilibrium on your indifference map with respect to X and Y.
does not change, but the
price of X falls
You move to a new point of equilibrium on the
Where you end up if both X and Y are normal goods.
Where you end up if X is inferior but not a Giffen good.
Where you end up if X is inferior and is a Giffen good.
Now: Show the impact of the income and substitution effects with respect to your
consumption of the good X in each of the three cases.
How are the substitution effects
different in each of these three two cases?
What is a Giffen Paradox?
If the good X is subject to a Giffen Paradox, show with
indifference curve, how you would respond to a sudden
rise in the price of X
income and substitution effects with respect to your consumption of X after the price rise.