Author Question: Which of the following is true concerning the income effect of a decrease in price? A) It will ... (Read 90 times)

genevieve1028 · **on:** Jul 1, 2018

Which of the following is true concerning the income effect of a decrease in price?

A) It will lead to an increase in consumption only for a normal good.
B) It always will lead to an increase in consumption.
C) It will lead to an increase in consumption only for an inferior good.
D) It will lead to an increase in consumption only for a Giffen good.

Question 2

Trisha's Fashion Boutique sells earrings and pendants. Trisha has two types of customers. Their willingness-to-pay for earrings and pendants are given in the table below.

If Trisha bundles the earrings and pendants together, could she increase revenue? Earrings Pendant Type I 100 65 Type II 90 75

iceage · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

A

Answer to Question 2

If Trisha bundles the products together and sells the bundle for 165, each of her customers will be willing to buy the bundle. Without bundling, Trisha would need to sell the earrings for 90 and the pendants for 65 in order to sell each customer both items. Thus, revenue from both items is 155 for each customer. Bundling increases Trisha's revenues by 10 per customer.