Given the utility function , where is an increasing function of , the effect of a change in income (holding prices fixed) on the demand for good 1 is
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2 marks, −1MicroeconomicsDemand theory and elasticityIncome elasticity, normal and inferior goods and Engel curvesEasyabout 1 min
JNU SIS 2018 Question 23: Demand theory and elasticity
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Given the utility function U(x₁, x₂) = x₂ + u(x₁), where u is an increasing function of x₁, the effect of a change in income (holding prices fixed) on the demand for good 1 is (A) positive (B) 0 (C) negative (D) None of the above
Also written as: Given the utility function U(x_1, x_2) = x_2 + u(x_1), where u is an increasing function of x_1, the effect of a change in income (holding prices fixed) on the demand for good 1 is
Demand theory and elasticity has come up 161 times in 7 exams since 2004.
What this question tests
This question is on Income elasticity, normal and inferior goods and Engel curves, part of Demand theory and elasticity in Microeconomics.
How demand responds to income, how goods are classified by that response, and Engel's law.
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