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Consumer Spending and Consumption

A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles
b. Income quadruples and all price double
c. Income and all prices quadruples
d. Income is halved and all prices double

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A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles

Consumption of good X will INCREASE and consumption of good Y will DECREASE.
Reason: This is because when ...

Solution Summary

A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles
b. Income quadruples and all price double
c. Income and all prices quadruples
d. Income is halved and all prices double

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