Answer to Question #327814 in Microeconomics for Paul

Question

Why do we decompose the price effect into income and substitution effects?

2) Explain the lexicographic ordering of preferences

3) What problem could arise with consumers’ net demand functions as any price becomes zero? What axiom of consumer theory is involved here? How might it be changed to exclude this possibility?

4) Why will a firm never plan to supply an output at which it has increasing returns to scale?

Answer 1

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