Question 1

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Accepted Answer

A)  on the old budget line and the new budget line. 
B)  on the original indifference curve when faced with the original prices and when faced with the new prices. 
C)  on the new budget line and a hypothetical budget line that is a shift back to the original indifference curve parallel to the new budget line. 
D)  on the new indifference curve. 
A)  on the old budget line and the new budget line. 
B)  on the original indifference curve when faced with the original prices and when faced with the new prices. 
C)  on the new budget line and a hypothetical budget line that is a shift back to the original indifference curve parallel to the new budget line. 
D)  on the new indifference curve.

Question 2

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury.

Question 3

For the following, please answer "True" or "False" and explain why.
-The compensated demand curve holds the consumer's utility fixed as the price changes.

Accepted Answer

A) True 
 B)False

Question 4

An increase in the price of a good causes

Accepted Answer

A)  a change in the slope of the budget line. 
B)  an increase in the consumption of that good. 
C)  a rightward shift of the demand curve for that good. 
D)  a parallel rightward shift of the budget line. 
A)  a change in the slope of the budget line. 
B)  an increase in the consumption of that good. 
C)  a rightward shift of the demand curve for that good. 
D)  a parallel rightward shift of the budget line.

Question 5

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

Accepted Answer

A positive slope of the income consumpti

Question 6

If the income elasticity of food is 0.72,then food is

Accepted Answer

A)  a necessity and a normal good. 
B)  a normal good. 
C)  a necessity. 
D)  an inferior good. 
A)  a necessity and a normal good. 
B)  a normal good. 
C)  a necessity. 
D)  an inferior good.

Question 7

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

Accepted Answer

A)  3 
B)  10 
C)  15 
D)  7 
A)  3 
B)  10 
C)  15 
D)  7

Question 8

As the price of a good rises,the consumer will experience

Accepted Answer

A)  a desire to consume a different bundle. 
B)  a decrease in utility. 
C)  a southwesterly movement on the indifference map. 
D)  All of the above. 
A)  a desire to consume a different bundle. 
B)  a decrease in utility. 
C)  a southwesterly movement on the indifference map. 
D)  All of the above.

Question 9

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

Accepted Answer

A)  Yes, if the two consumption bundles lie on the same indifference curve. 
B)  Yes, if the second bundle yields more utility than the first. 
C)  No, the first bundle is clearly preferred. 
D)  Not enough information. 
A)  Yes, if the two consumption bundles lie on the same indifference curve. 
B)  Yes, if the second bundle yields more utility than the first. 
C)  No, the first bundle is clearly preferred. 
D)  Not enough information.

Question 10

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his substitution effect?

Accepted Answer

A)  3 
B)  10 
C)  15 
D)  7 
A)  3 
B)  10 
C)  15 
D)  7

Question 11

Draw two graphs,one directly above the other.On the upper graph,label the vertical axis Good X and label the horizontal axis Good Y.On the lower graph,label the vertical axis the Price of good Y and label the horizontal axis Good Y.In the upper graph,show the income and substitution effects of a decrease in the Price of good Y when Y is a Giffen good.Draw the corresponding demand curve for Good Y in the lower graph.

Accepted Answer

@#IMG-DLM& See the above figure.Point A

Question 12

Suppose that frozen dinners were once a normal good for John,but now frozen dinners are an inferior good for him.John's demand curve for frozen dinners

Accepted Answer

A)  has become steeper as a result. 
B)  has become flatter as a result. 
C)  has not changed as a result. 
D)  has disappeared as a result. 
A)  has become steeper as a result. 
B)  has become flatter as a result. 
C)  has not changed as a result. 
D)  has disappeared as a result.

Question 13

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods.Which of the following points are on Bobby's demand curve for snacks?

Accepted Answer

A)  p = 2, q = 10 
B)  p = 2, q = 13 
C)  p = 2, q = 5 
D)  p = 1, q = 20 
A)  p = 2, q = 10 
B)  p = 2, q = 13 
C)  p = 2, q = 5 
D)  p = 1, q = 20

Question 14

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

Accepted Answer

A)  the income effect is greater than the substitution effect. 
B)  the income effect is smaller than the substitution effect. 
C)  consumption of hamburger will increase. 
D)  We are unable to judge the change of hamburger consumption. 
A)  the income effect is greater than the substitution effect. 
B)  the income effect is smaller than the substitution effect. 
C)  consumption of hamburger will increase. 
D)  We are unable to judge the change of hamburger consumption.

Question 15

When Trina can afford bundles A and B but not C,she purchases bundle A.When Trina can afford bundles A and C,but not B,she purchases bundle C.We can conclude her preference ordering of the three bundles is (in order from most preferred to least)

Accepted Answer

A)  C, A, B. 
B)  B, A, C. 
C)  A, C, B. 
D)  A, B, C. 
A)  C, A, B. 
B)  B, A, C. 
C)  A, C, B. 
D)  A, B, C.

Question 16

A consumer's utility function is given by:
U(x,y)= 10xy
Currently,the prices of goods x and y are $3 and $5,respectively,and the consumer's income is $150.
a.Find the MRS for this consumer for any given bundle (x,y).
b.Find the optimal consumption bundle for this consumer.
c.Suppose the price of good x doubles.How much income is required so that the consumer is able to purchase the original consumption bundle (if you were unable to solve d.,then take a guess at what the optimal bundle is before solving this)
d.Now that the price of good x has doubled,how much income is needed for the consumer to reach the original level of utility? Is this more or less that what you found in e.?

Accepted Answer

a.MRS = y/x
b.The MRS=MRT condition says

Question 17

Shin likes to spend a (relatively small)portion of his income on vacations to Cabo San Lucas (a popular resort area in Mexico).On these trips,he either stays at a four star resort with panoramic ocean views or a more modest,and slightly deteriorating hotel in the noisy part of town.Understandably,the four star hotel is significantly more expensive.Suppose that the four-star hotel costs $5000/trip while the hotel costs just $500/trip.In recent years,the price of airfare has risen significantly,a change that effects the cost of his trips the same regardless of where he stays.Suppose that airfare has increased from $300/trip to $1000/trip.Why is it that following the higher travels prices,Shin is likely to spend more of his vacations at the four star resort when he travels.(Assume that the hotel rates and Shin's preferences are fixed).

Accepted Answer

This is an application similar to Shippi

Question 18

For the following, please answer "True" or "False" and explain why.
-Inflation over time necessarily makes consumers worse off.

Accepted Answer

A) True 
 B)False

Question 19

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

Accepted Answer

Engel curve A implies that a certain lev

Question 20

Jill consumes nothing but soup and cola.If cola is a luxury good for Jill,then soup must be a necessity.

Accepted Answer

A) True 
 B)False

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

For the following, please answer "True" or "False" and explain why. -The compensated demand curve holds the consumer's utility fixed as the price changes.

An increase in the price of a good causes

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

If the income elasticity of food is 0.72,then food is

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

As the price of a good rises,the consumer will experience

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his substitution effect?

Suppose that frozen dinners were once a normal good for John,but now frozen dinners are an inferior good for him.John's demand curve for frozen dinners

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods.Which of the following points are on Bobby's demand curve for snacks?

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

When Trina can afford bundles A and B but not C,she purchases bundle A.When Trina can afford bundles A and C,but not B,she purchases bundle C.We can conclude her preference ordering of the three bundles is (in order from most preferred to least)

For the following, please answer "True" or "False" and explain why. -Inflation over time necessarily makes consumers worse off.

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

Jill consumes nothing but soup and cola.If cola is a luxury good for Jill,then soup must be a necessity.

Introduction

Supply and Demand

A Consumers Constrained Choice

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 4: Demand

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

For the following, please answer "True" or "False" and explain why. -The compensated demand curve holds the consumer's utility fixed as the price changes.

An increase in the price of a good causes

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

If the income elasticity of food is 0.72,then food is

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

As the price of a good rises,the consumer will experience

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his substitution effect?

Suppose that frozen dinners were once a normal good for John,but now frozen dinners are an inferior good for him.John's demand curve for frozen dinners

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods.Which of the following points are on Bobby's demand curve for snacks?

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

When Trina can afford bundles A and B but not C,she purchases bundle A.When Trina can afford bundles A and C,but not B,she purchases bundle C.We can conclude her preference ordering of the three bundles is (in order from most preferred to least)

For the following, please answer "True" or "False" and explain why. -Inflation over time necessarily makes consumers worse off.

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

Jill consumes nothing but soup and cola.If cola is a luxury good for Jill,then soup must be a necessity.

Introduction

Supply and Demand

A Consumers Constrained Choice

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters