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Suppose that Tom has preferences represented by ____. Initially, ____. If the price of good x rises to 4, what is the income effect on x?

a. -4.09
b. -6.21
c. -7.79
d. -9.63

User Koo
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1 Answer

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Final answer:

The income effect on good x is negative, meaning Tom will consume less of good x as his income increases.The correct answer is option A.

Step-by-step explanation:

The income effect on good x can be calculated by determining the change in quantity consumed of good x as a result of the change in income. In this case, the price of good x has risen to 4.

If Tom's preferences are such that the quantity of x demanded decreases as income increases, then the income effect on x is negative. This means that as Tom's income increases, he will consume less of good x.

Based on the given options, the correct answer would be a. -4.09 as it represents the income effect on x when the price of x rises to 4.The correct answer is option A.

User Shahab Rahnama
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