Share
Explore BrainMass

Optimal Consumption, Market Demand, and Income Effect

At the optimal consumption bundle
a. the marginal utility of all goods consumed is equal
b. the marginal utility per dollar spent is equal for all goods consumed
c. the price of all goods consumed is equal
d. none of the above are true

Well consumption bundle, the goods and services that are consumed so it is D

The market demand curve
a. is the horizontal summation of the individual demand curve of all consumers
b. is the vertical summation of the individual demand curve of all consumers
c. cannot be derived from the individual demand curve of all consumers
d. has no relation to individual demand

It is A (individual consumer's quantity demanded depends on price. Individual demand curves are summed orizontally to yield the market demand curve.)

The income effect of a price change is the effect on the consumption of a good
a. due to a change in income when all prices change in the same proportion
b. due to a change in purchasing power caused by a change in the price of the good
c. due to a change in income caused by a change in the price of labor
D. due to a change in income sufficient to offset the effect of a price change

My answer is A

Solution Preview

1) b - check the graph at the end of page 6 ...

$2.19