Ben Consumes Two Goods and His Utility Function Is U(x₁

question 20

Multiple Choice

Ben consumes two goods and his utility function is U(x₁, x₂) =x²₁x⁴₂.The price of good 2 does not change and his income does not change, but the price of good 1 decreases.

• A)The income effect is zero, since his income remained constant.
• B)The substitution effect on the demand for good 2 is zero, since the price of good 2 did not change.
• C)The substitution effect reduces the demand for good 2, and since the income effect is zero, the demand for good 2 falls.
• D)The substitution effect of the price change reduces the demand for good 2 and increases the demand for good 1.
• E)More than one of the above statements is true.

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Definitions:

Special Order

A special order is a one-time or unusual request from a customer that can require different pricing, terms, or production considerations compared to standard orders.

Regular Sales

The routine transactions and revenue generated from the normal business operations excluding any extraordinary or non-recurring sales.

Financial Advantage

This refers to the benefit gained by an entity in a financial context, which could include lower costs, higher revenues, or other monetary gains.

Outside Supplier

An external company or entity that provides goods or services to another company, typically part of the supply chain.