Question 1

A tax cut will unambiguously lower income-tax revenue.

Accepted Answer

A) True 
 B)False

Question 2

A Giffen good has

Accepted Answer

A)  a positive substitution effect. 
B)  a negative income effect. 
C)  a larger income effect than substitution effect. 
D)  All of the above. 
A)  a positive substitution effect. 
B)  a negative income effect. 
C)  a larger income effect than substitution effect. 
D)  All of the above.

Question 3

A movement upward along an upward sloping Engel curve corresponds to

Accepted Answer

A)  upward sloping indifference curves. 
B)  crossing indifference curves. 
C)  a rotation in the budget constraint. 
D)  a parallel shift in the budget constraint. 
A)  upward sloping indifference curves. 
B)  crossing indifference curves. 
C)  a rotation in the budget constraint. 
D)  a parallel shift in the budget constraint.

Question 4

An inferior good exhibits

Accepted Answer

A)  a negative income elasticity. 
B)  a downward sloping Engel curve. 
C)  a decline in the quantity demanded as income rises. 
D)  All of the above. 
A)  a negative income elasticity. 
B)  a downward sloping Engel curve. 
C)  a decline in the quantity demanded as income rises. 
D)  All of the above.

Question 5

Why can't all goods be inferior?

Accepted Answer

If all goods were inferior,an increase i

Question 6

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.As the price of snacks rises,the price for juice

Accepted Answer

A)  stays the same. 
B)  increases. 
C)  decreases 
D)  might change, but there is not enough information to determine. 
A)  stays the same. 
B)  increases. 
C)  decreases 
D)  might change, but there is not enough information to determine.

Question 7

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2.Any amount he saves will earn interest at a rate of 10%.Draw Joe's budget line.(Hint: He can either consume all $1000 this year or consume nothing this year and have $1,100 next year.)Assuming convex indifference curves,show that an increase in the rate of interest can cause Joe's savings to either increase or decrease.Explain in terms of income and substitution effect.

Accepted Answer

@#IMG-DLM& See the above figure.On the graph,his o

Question 8

Richard receives government transfer payments and currently consumes 5 guns and 6 goose livers.Assume the price of guns decreases by 10% and the price of goose liver increases by 20%.The government raises Richard's transfer payments so he can still afford 5 guns and 6 goose livers.Does this constitute a true cost-of-living adjustment (COLA)?

Accepted Answer

A)  No. Richard is overcompensated. 
B)  No. Richard is undercompensated. 
C)  Yes. The payment just achieves the right level of compensation. 
D)  Not enough information. 
A)  No. Richard is overcompensated. 
B)  No. Richard is undercompensated. 
C)  Yes. The payment just achieves the right level of compensation. 
D)  Not enough information.

Question 9

Which of the following is the geometric mean of 4 and 9?

Accepted Answer

A)  6.5 
B)  6 
C)  36 
D)  3.6 
A)  6.5 
B)  6 
C)  36 
D)  3.6

Question 10

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D 
A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 11

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y ∗ L and this person has no non-labor income.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply when the person wins a lottery prize of $100 per day.

Accepted Answer

Rearranging yields U = (Y^* + 10H)∗ (24 -

Question 12

If Bobby thinks that leisure is an inferior good,then his labor supply curve

Accepted Answer

A)  is backward bending. 
B)  is always negatively sloped. 
C)  is always positively sloped. 
D)  does not exist. 
A)  is backward bending. 
B)  is always negatively sloped. 
C)  is always positively sloped. 
D)  does not exist.

Question 13

Suppose the typical consumer only purchases food and clothing,and her utility can be expressed as   .
 Currently,food costs $5 per unit and clothing costs $2 per unit.Her income is $70.If the price of food increases to $6,compare the resulting Laspeyres price index with a true cost of living index.

Accepted Answer

Maximizing utility subject to the initia

Question 14

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g0.9s0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

Accepted Answer

A)  There will be a shortage of 3 cigarettes. 
B)  There will be a surplus of 3 cigarettes. 
C)  There will be a shortage of 2/3 cigarettes. 
D)  There will be a surplus of 2/3 cigarettes. 
A)  There will be a shortage of 3 cigarettes. 
B)  There will be a surplus of 3 cigarettes. 
C)  There will be a shortage of 2/3 cigarettes. 
D)  There will be a surplus of 2/3 cigarettes.

Question 15

-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 16

The belief that a cut in the income tax rate must raise government income tax revenue has the implicit assumption that

Accepted Answer

A)  higher income tax reduces the number of hours worked. 
B)  higher income tax increases the number of hours worked. 
C)  leisure is always an inferior good. 
D)  None of the above. 
A)  higher income tax reduces the number of hours worked. 
B)  higher income tax increases the number of hours worked. 
C)  leisure is always an inferior good. 
D)  None of the above.

Question 17

-Which graph in the above figure best represents a good that is an inferior good at some income levels,and a normal good at other income levels?

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D 
A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 18

In response to an increase in the wage rate,the substitution effect will cause a person to

Accepted Answer

A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  supply the same hours of labor. 
D)  have a backward bend in her labor supply curve. 
A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  supply the same hours of labor. 
D)  have a backward bend in her labor supply curve.

Question 19

Under which of the following conditions will there be no substitution bias in the CPI?

Accepted Answer

A)  Indifference curves are convex. 
B)  Indifference curves are L-shaped. 
C)  Indifference curves are linear. 
D)  Indifference curves are downward sloping. 
A)  Indifference curves are convex. 
B)  Indifference curves are L-shaped. 
C)  Indifference curves are linear. 
D)  Indifference curves are downward sloping.

Question 20

If a person supplies fewer hours of labor in response to a wage increase,then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility.

A tax cut will unambiguously lower income-tax revenue.

A Giffen good has

A movement upward along an upward sloping Engel curve corresponds to

An inferior good exhibits

Why can't all goods be inferior?

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.As the price of snacks rises,the price for juice

Which of the following is the geometric mean of 4 and 9?

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y ∗ L and this person has no non-labor income.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply when the person wins a lottery prize of $100 per day.

If Bobby thinks that leisure is an inferior good,then his labor supply curve

Suppose the typical consumer only purchases food and clothing,and her utility can be expressed as . Currently,food costs $5 per unit and clothing costs $2 per unit.Her income is $70.If the price of food increases to $6,compare the resulting Laspeyres price index with a true cost of living index.

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g^0.9s^0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-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?

The belief that a cut in the income tax rate must raise government income tax revenue has the implicit assumption that

-Which graph in the above figure best represents a good that is an inferior good at some income levels,and a normal good at other income levels?

In response to an increase in the wage rate,the substitution effect will cause a person to

Under which of the following conditions will there be no substitution bias in the CPI?

If a person supplies fewer hours of labor in response to a wage increase,then

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 5: Applying Consumer Theory

A tax cut will unambiguously lower income-tax revenue.

A Giffen good has

A movement upward along an upward sloping Engel curve corresponds to

An inferior good exhibits

Why can't all goods be inferior?

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.As the price of snacks rises,the price for juice

Which of the following is the geometric mean of 4 and 9?

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y ∗ L and this person has no non-labor income.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply when the person wins a lottery prize of $100 per day.

If Bobby thinks that leisure is an inferior good,then his labor supply curve

Suppose the typical consumer only purchases food and clothing,and her utility can be expressed as . Currently,food costs $5 per unit and clothing costs $2 per unit.Her income is $70.If the price of food increases to $6,compare the resulting Laspeyres price index with a true cost of living index.

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g0.9s0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-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?

The belief that a cut in the income tax rate must raise government income tax revenue has the implicit assumption that

-Which graph in the above figure best represents a good that is an inferior good at some income levels,and a normal good at other income levels?

In response to an increase in the wage rate,the substitution effect will cause a person to

Under which of the following conditions will there be no substitution bias in the CPI?

If a person supplies fewer hours of labor in response to a wage increase,then

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g^0.9s^0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-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?