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    Consumer Spending and Consumption

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

    Please show work

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    Solution Preview

    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

    $2.19

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