2. (a) For each of the following statements, indicate whether it is a positive statement or...

2. (a) For each of the following statements, indicate whether it is a positive statement or a normative statement and why. 4 marks

i. A fundamental assumption of the economic theory of consumer behavior is that consumers always prefer having more of any good to having less of it.

ii. Provincial governments should not subsidize private corporations by training welfare recipients.

iii. To make the good available to more people, a lower price should be set.

iv. When the price of a good goes up, consumers tend to buy less of it.

(b) Nancy’s marginal rate of substitution of good X for good Y is MRS XY = 3 2 Y X . She is currently consuming 4 units of Y and 2 units of X. Based on this information, should she accept an offer to trade 2 units of Y for 1 unit of X? Why? 4 marks

(c) Suppose Amr manages to survive by eating Cereal (C) and Vegetables (V) only. His utility function is U =(C+V) = 8C + 4V. His weekly budget is $60, one kg of Cereal costs $6 and one kg of Vegetables costs $3. What is Amr preferred bundle of Cereal and Vegetables, (C*, V*). Explain your answers.

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Rahul Sunny answered 1 year ago

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