Microeconomics Assignment Example | Topics and Well Written Essays - 750 words - 3

Microeconomics - fitting ExampleA good graphical representation of functional utility is shown below.Marginal rate of successor represents the rate at which customers are ready to give up one commodity in order of magnitude to exchange while ensuring a same level of utility. MRS varies with points along the indifference hence it is vital to have locally in the definition. In addition, MRS of a commodity X is equivalent to the marginal utility of X over the marginal utility of Y.a. An increase in the price of a normal good This had set effect of changes in income on consumption choice. In this case, consumers buy more goods when their income rises as the prices remain quick-frozen in the market.In this case, a change in the income of the buyer causes the demand curve to shift. This is evident done a negatively sloped demand curve to counter the space in the exhibit. Therefore, the increase in demand causes an increase in demand and a shift to the right of the demand curve for vivification space.b. A decrease in the price of an inferior good In the market, a decrease in the prices of such goods leads to increase in the equilibrium amount demanded. Therefore, the substitution effect would force the consumer to buy more of the good.c. An increase in the price of a Giffen good In economics, an increase in the prices of Giffen good increases the quantity of the good that is demanded in the market. This results to an upward sloping demand curve due to interactions of the income and substitution effects. The income effect fucking be positive or negative when the price of these goods