Author Question: Median household income is 50,000 per year. The typical household spends about 125 per year on milk, ... (Read 130 times)

natalie2426 · **on:** Jul 1, 2018

Median household income is 50,000 per year. The typical household spends about 125 per year on milk, which has an income elasticity of about 0.07. From this information, we can conclude that

A) milk is a luxury.
B) milk is a Giffen good.
C) the income effect from a change in the price of milk is very large.
D) the income effect from a change in the price of milk is very small.

Question 2

Joe and Rita each have some milk and cookies (Milk on the horizontal axis). Joe's MRS of cookies for milk is 2. Rita's MRS of cookies for milk is 4. Which of the following statements is TRUE?

A) No gains from trade are possible.
B) Both Rita and Joe can be made better off if Rita gives Joe some cookies in exchange for milk.
C) Rita and Joe are on the contract curve.
D) Both Rita and Joe can be made better off if Joe gives Rita some cookies in exchange for milk.