Suppose a Consumer Who Purchases Only Two Goods Is Making

question 43

Multiple Choice

Suppose a consumer who purchases only two goods is making a utility-maximizing choice and then the price of one of the goods decreases. What will happen?

• A) The consumer's purchasing power will increase.
• B) The consumer's utility will increase.
• C) The consumer's income will increase.
• D) both a and b
• E) all of the above

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Definitions:

LRMC

Long-Run Marginal Cost, which is the additional cost of producing one more unit of output when all inputs, including capital, are variable.

LRAC

Long-Run Average Cost, a curve that shows the lowest possible average cost of production, allowing all factors of production to vary.

Long-run Elasticities

Measure of responsiveness of demand or supply to changes in price or income, considered over a period long enough for all adjustments to be made.

Short-run Elasticities

Measures of how responsive the quantity demanded or supplied of a good is to a price change over a short period.