Author Question: If a household's money income changes and prices do not change, what happens to the household's real ... (Read 112 times)

SGallaher96

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If a household's money income changes and prices do not change, what happens to the household's real income and budget line?
 
  What will be an ideal response?

Question 2

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?
 
  A) It falls by 162 percent. B) It rises.
  C) It falls. D) It rises by 1.62 percent.


CharlieArnold

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Answer to Question 1

A household's real income is the household's income expressed as a quantity of goods the household can afford to buy. For example, the vertical intercept for a budget line measuring soda on the vertical axis is (y/Psoda), which is the consumer's real income in terms of sodas. A change in a household's money income changes the household's real income in terms of both goods and causes a parallel shift of the budget line. If a household's money income increases, its budget line shifts rightward and if a household's money income decreases, its budget line shifts leftward.

Answer to Question 2

C



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