6) Rational ignorance (Multipte Choice Continued) a. Voters know there is a low

Question

6) Rational ignorance (Multipte Choice Continued) a. Voters know there is a low value to being nformed. b. Firms use imperfect information to get consumers c. A seller has more information about the value to being informed on policies and a high cost to being to pay higher prices. d. A firm spends zero dollars on the quality of a product than a buyer Price X Quantity o $8 $5 $5 Good X 10 17 12 The table above shows the quantities of Good X that a consumer purchases in three different situations (A, B, and C). The consumer has the same income in situation A and B and lower income in situation C. The consumer has the same level of utility in 7) situation A and C. Determine the substitution effects for this price change. a. Substitution Effect is +7; Income Effect is +0 b. Substitution Effect is +0; Income Effect is +7 c. Substitution Effect is +2; Income Effect is +5 d. Substitution Effect is +5; Income Effect is +2 e. None of the above.

Explanation / Answer

1) Solution: voters know there is a low value to being informed on policies and a high cost to being informed

Explanation: Rational ignorance occurs when the cost of educating oneself on a concern exceeds the potential gains that the knowledge would provide.

2) Solution: Substitution effect is +7; Income effect is +0

Working: 17-10 = 7; income is same

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