As a result of a decrease in the price of MP3 music, consumers download more songs and buy fewer CDs. This is an illustration of: (Group of answer choices) Consumer sovereignty; The substitution effect; The income effect; Diminishing marginal utility.
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In this scenario, we have a decrease in the price of MP3 music, which leads to consumers downloading more songs and buying fewer CDs. Show more…
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7. Suppose that you buy a lot of music and that the prices of CDs go up. The income effect means that you buy __________ CDs because ___________. A) fewer; your nominal income has been reduced B) fewer; your real income has been reduced C) fewer; CDs are more expensive relative to other goods D) more; you now enjoy music more.
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Consider the standard consumer choice problem with fixed income. If the price of a normal good decreases, ceteris paribus, then ___________________________. Group of answer choices: A. The income effect will increase consumption of the good and the substitution effect will decrease consumption. B. The income effect and the substitution effect will both increase consumption of the good. C. The income effect will decrease consumption of the good and the substitution effect will increase consumption. D. The income effect and the substitution effect will both decrease consumption of the good.
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Suppose a consumer has a fixed amount to spend each week on iTunes songs (\$1 each) and movies (\$6 each). For the combination she chose this week, the marginal utility of movies is 30 and the marginal utility of songs is 3 . For next week she should ______ (increase/decrease) the number of songs and ______ (increase/decrease) the number of movies.
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