Goods 1 and 2 Are Perfect Complements and a Consumer

question 38

Multiple Choice

Goods 1 and 2 are perfect complements and a consumer always consumes them in the ratio of 2 units of good 2 to 1 unit of good 1.If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of good 1 stays at $1, then the income effect of the price change

• A)is 4 times as strong as the substitution effect.
• B)does not change the demand for good 1.
• C)is exactly twice as strong as the substitution effect.
• D)accounts for the entire change in demand.
• E)is 3 times as strong as the substitution effect.

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Definitions:

World War II

A global conflict that lasted from 1939 to 1945, involving most of the world's nations and marked by significant events and battles across various continents.

Automatic Stabilizer

A government policy or program designed to counteract fluctuations in the nation's economic activity without intervention by policymakers, thereby stabilizing the economy over the business cycle.

Unemployment Insurance

A government program that provides financial assistance to unemployed workers who have lost their jobs through no fault of their own.

Automatic Stabilizers

Economic policies and programs that automatically adjust to counteract economic fluctuations without the need for government intervention.