Economic theory suggests that individuals are A. responsive to incentives B. rat

Question

Economic theory suggests that individuals are A. responsive to incentives B. rational C. utility maximizing D. all of the above 1 points QUESTION 38 Which of the following is the likeliest explanation for a shift in the graph below from D1 to D2? finalexam71807.bmp A. The price of a complement goes up. B. The priceof a substitute goes up. C. The number of buyers goes up. D. All of the above 1 points QUESTION 39 An increase in real income will __________ demand for normal goods and _________ demand for inferior goods, ceteris paribus. A. decrease, decrease B. decrease, increase C. increase, decrease D. increase, increase 1 points QUESTION 40 If the price of good x changes relative to good y, the substitution effect suggests that consumers will: A. buy more of the cheaper good and less of the more expensive. B. buy more of the more expensive good and less of the cheaper. C. buy more of both goods. D. buy less of both goods.

Explanation / Answer

37. Economic theory suggests that consumers are rational. They follow the axioms of rationaltiy.

38. image is not there. Although it seems the demand curve has moved to the right. So, the increase in number of buyers can be the reason.

39. increase in real income will increase the demand for normal good while decreasing the demand for inferior good.

40. If the price of good x changes relative to good y, the substitution effect suggests that consumers will buy more of the cheaper good and less of the costly good.

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