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#1
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Sir Toru (and others are welcome too) Please mark these questions
the first question is 15 marks. the second is 10 marks. criticism of any kindwill be highly appreciated.
sorry for the blurred images. will do better next time. and here is the ten marks one. i will go and get you more... |
#2
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looks like it is maybe difficult to read
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#3
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actually im online from my cell phone.
will definitely go through it and get back to you |
#4
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roger
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#5
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Question 1
I have gone over your first question.
Looks good. But be careful in drawing the indifference curves. your indifference curve demonstrates an upward slope towards the edge on the right (it slopes down but goes up again). It is ALWAYS downward sloping (unless utility functions state otherwise) so make sure it doesn't go up on the edge below. Also write what every term means. I don't see you define Ux and Uy as Marginal Utilities of X and Y. Will go over the other question later. Im faced with scarcity of time at the moment. Apologies for the Delay! |
The Following User Says Thank You to Toru For This Useful Post: | ||
waqas izhar (Thursday, June 05, 2014) |
#6
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Quote:
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#7
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sir second question too if you please...
regards |
#8
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Good Work. I see that you have analyzed correctly but since, it is explicitly mentioned that the good is inferior for Haroon, you should produce the Substitution and Income Effects on the graph. Mere indifference curves will not serve the purpose. You have made no mention of both the notions in your paragraphs. I suggest you explicate and account for them since it is, as a result of these two effects that determines the nature of the good, whether normal or inferior.
Secondly, since one of the goods is inferior, the income effect has to be negative or more appropriately, in the opposite direction to that of the substitution effect. A fall in the price of the inferior good suggests an increase in your real income. This means you can get the same amount of inferior goods for less than what they initially cost you. However, by virtue of the good being inferior, I think your second graphical analysis (Point F) is correct. I am doubtful about the first one, Point E. But not sure. Here is why. If you observe, you have located it at an exact vertical position, depicting same qty of X. The only time your level of consumption of a good remains constant is when the substitution and income effects are identical and cancel each other out. If a good is inferior, then the income effect states that the quantity demanded of the good will decrease when the price of the good decreases, and vice versa. The income effect is opposite the price movement for a normal good and in the same direction as the price movement for an inferior good. (Remember that a price increase(decrease) corresponds to an income decrease (increase) ) |
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waqas izhar (Tuesday, June 10, 2014) |
#9
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The point is that I believe your consumption of X should decrease (as you have successfully shown in the second diagram) and not remain constant, since that is the whole point of the good being inferior. As a price decrease is the same as an increase in (real) income, it should also lead to negative income elasticity -- an essential characteristic of inferior goods. But again do confirm this. The rest is pretty go-green!
Best of Luck. Hope this proved useful. P.S. Sorry I meant Points F and G |
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waqas izhar (Tuesday, June 10, 2014) |
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