Assume Convex Preferences and a Negative Cross Price Elasticity

question 18

Multiple Choice

Assume convex preferences and a negative cross price elasticity. If the price of good 1 increases, the substitution effect causes

• A)consumption of good 1 to rise and good 1 to fall
• B)consumption of good 2 to rise and good 1 to fall
• C)consumption of good 2 to fall and good 1 to fall
• D)consumption of good 1 to fall and good 2 to remain unchanged

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Definitions:

Units of X

A term often used in economics to denote a quantity of a particular good or service being considered.

Data

Information, especially facts or numbers, collected to be examined and considered and used to help decision-making.

Value for Y

This term does not directly correspond to a widely recognized economic concept without additional context. It may be used in specific mathematical or economic models to denote the value of a variable Y.

Marginal Utility

The change in total utility a person receives from consuming one additional unit of a good or service.