Question 1

-The above figure shows Larry's indifference map and budget lines for ham and pork.Which of the following statements is TRUE?

Accepted Answer

A)  Pork is an inferior good. 
B)  Ham is an inferior good. 
C)  Neither pork nor ham is an inferior good. 
D)  Both ham and pork are inferior goods. 
A)  Pork is an inferior good. 
B)  Ham is an inferior good. 
C)  Neither pork nor ham is an inferior good. 
D)  Both ham and pork are inferior goods.

Question 2

Consider two lottery winners,Tino who is 65 years old and Sasha who is 32 years old.Which of these two would be expected to have the larger income effect,all else equal?

Accepted Answer

A)  Sasha 
B)  Tino 
C)  Both would have no income effect. 
D)  Both would have equal income effects. 
A)  Sasha 
B)  Tino 
C)  Both would have no income effect. 
D)  Both would have equal income effects.

Question 3

A demand curve for a Giffen good would be

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical. 
A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical.

Question 4

The price of leisure

Accepted Answer

A)  is the same for everyone. 
B)  depends on the number of hours worked. 
C)  is measured as foregone earnings. 
D)  is immeasurable. 
A)  is the same for everyone. 
B)  depends on the number of hours worked. 
C)  is measured as foregone earnings. 
D)  is immeasurable.

Question 5

The real wage in Fantasyland has been constant since 1950.The nominal wage in 2015 was $100,and the Consumer Price Index (CPI)was 200 in 2015.What was the nominal wage in 2002 if the CPI was 50 in 2002?

Accepted Answer

A)  Nominal wage = $25 
B)  Nominal wage = $400 
C)  Nominal wage = $100 
D)  Nominal wage = $250 
A)  Nominal wage = $25 
B)  Nominal wage = $400 
C)  Nominal wage = $100 
D)  Nominal wage = $250

Question 6

In the case of a normal good,

Accepted Answer

A)  demand curves always slope downward. 
B)  the income effect and substitution effect are in the same direction. 
C)  the Engel curve slopes upward. 
D)  All of the above. 
A)  demand curves always slope downward. 
B)  the income effect and substitution effect are in the same direction. 
C)  the Engel curve slopes upward. 
D)  All of the above.

Question 7

When the price of a good changes,the substitution 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 8

-The above figure shows a consumer's indifference curves for soda and all other goods.Assuming a budget of $100,derive the consumer's demand for soda for prices of $4 and $10 per case of soda.Estimate the price elasticity of demand for soda.

Accepted Answer

At a price of $4,15 cases are

Question 9

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

Accepted Answer

A)  the income effect when relative prices change. 
B)  the substitution effect when relative prices change. 
C)  that some goods are inferior. 
D)  that the substitution effect may offset the income effect. 
A)  the income effect when relative prices change. 
B)  the substitution effect when relative prices change. 
C)  that some goods are inferior. 
D)  that the substitution effect may offset the income effect.

Question 10

Median household income is $50,000 per year.The typical household spends about $125 per year on milk,which has an income elasticity of about 0.07.From this information,we can conclude that

Accepted Answer

A)  milk is a luxury. 
B)  milk is a Giffen good. 
C)  the income effect from a change in the price of milk is very large. 
D)  the income effect from a change in the price of milk is very small. 
A)  milk is a luxury. 
B)  milk is a Giffen good. 
C)  the income effect from a change in the price of milk is very large. 
D)  the income effect from a change in the price of milk is very small.

Question 11

An individual derives utility from games,g (y-axis),and toy airplanes,a (x-axis),described by the utility function U(g,a)= g0.6a0.4.The price per game is $20 and the price of toy airplanes is $10.Using the slope of the income consumption curve (ICC),determine whether games and toy airplanes are normal or inferior goods when income increases from $100 to $200.

Accepted Answer

A)  Both goods are normal goods with an ICC slope of   . 
B)  Both goods are normal goods with an ICC slope of   . 
C)  Both goods are inferior goods with an ICC slope of -   . 
D)  Both goods are inferior goods with an ICC slope of -   . 
A)  Both goods are normal goods with an ICC slope of   . 
B)  Both goods are normal goods with an ICC slope of   . 
C)  Both goods are inferior goods with an ICC slope of -   . 
D)  Both goods are inferior goods with an ICC slope of -   .

Question 12

The nominal price of a desk increased from $20 in 2005 to $65 in 2016.The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016.We can say that

Accepted Answer

A)  the real price of a desk increased over time. 
B)  the real price of a desk fell over time. 
C)  the real price of a desk has not changed over time. 
D)  There is not enough information to determine the real price of a desk. 
A)  the real price of a desk increased over time. 
B)  the real price of a desk fell over time. 
C)  the real price of a desk has not changed over time. 
D)  There is not enough information to determine the real price of a desk.

Question 13

What might explain a professional baseball player having lower production the year after signing a multimillion dollar contract?

Accepted Answer

A)  the substitution effect 
B)  the endowment effect 
C)  bounded rationality 
D)  the income effect 
A)  the substitution effect 
B)  the endowment effect 
C)  bounded rationality 
D)  the income effect

Question 14

Leisure is an inferior good for Assel.In response to an increase in the wage rate,she will

Accepted Answer

A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  enjoy more hours of leisure. 
D)  None of the above. 
A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  enjoy more hours of leisure. 
D)  None of the above.

Question 15

Why would you expect the demand for diamond jewelry to fall faster than plastic,costume jewelry when all incomes fall?

Accepted Answer

The income elasticities differ

Question 16

An individual derives utility from consuming "all other goods," g,and clean air (measured by the reduction in particulate matter per m3),a,as measured by the utility function U(g,a)= g0.6a0.4.The price of consumer goods equals $20 and the price of clean air (abatement)equals $10.What is the slope of the Engel curve when income increases from $100 to $200?

Accepted Answer

A)  The slope is 25. 
B)  The slope is -25. 
C)  The slope is zero. 
D)  The slope is infinite. 
A)  The slope is 25. 
B)  The slope is -25. 
C)  The slope is zero. 
D)  The slope is infinite.

Question 17

A backward-bending labor supply curve implies that

Accepted Answer

A)  the substitution effect dominates the income effect at higher wage rates but not at lower wage rates. 
B)  the substitution effect dominates the income effect at lower wage rates but not at higher wage rates. 
C)  leisure is an inferior good. 
D)  workers are irrational. 
A)  the substitution effect dominates the income effect at higher wage rates but not at lower wage rates. 
B)  the substitution effect dominates the income effect at lower wage rates but not at higher wage rates. 
C)  leisure is an inferior good. 
D)  workers are irrational.

Question 18

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

Accepted Answer

A)  compensating variation. 
B)  structured settlement. 
C)  equivalent variation. 
D)  consumer surplus. 
A)  compensating variation. 
B)  structured settlement. 
C)  equivalent variation. 
D)  consumer surplus.

Question 19

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

Accepted Answer

A) True 
 B)False

Question 20

What is the primary difference between the substitution and the income effect of a price change?

Accepted Answer

A)  The substitution effect holds income constant and the income effect holds utility constant. 
B)  The substitution effect is always positive and the income effect is always negative. 
C)  The substitution effect holds utility constant and the income effect holds prices constant. 
D)  The substitution effect is always negative and the income effect is always positive. 
A)  The substitution effect holds income constant and the income effect holds utility constant. 
B)  The substitution effect is always positive and the income effect is always negative. 
C)  The substitution effect holds utility constant and the income effect holds prices constant. 
D)  The substitution effect is always negative and the income effect is always positive.

-The above figure shows Larry's indifference map and budget lines for ham and pork.Which of the following statements is TRUE?

Consider two lottery winners,Tino who is 65 years old and Sasha who is 32 years old.Which of these two would be expected to have the larger income effect,all else equal?

A demand curve for a Giffen good would be

The price of leisure

The real wage in Fantasyland has been constant since 1950.The nominal wage in 2015 was $100,and the Consumer Price Index (CPI)was 200 in 2015.What was the nominal wage in 2002 if the CPI was 50 in 2002?

In the case of a normal good,

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

-The above figure shows a consumer's indifference curves for soda and all other goods.Assuming a budget of $100,derive the consumer's demand for soda for prices of $4 and $10 per case of soda.Estimate the price elasticity of demand for soda.

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

Median household income is $50,000 per year.The typical household spends about $125 per year on milk,which has an income elasticity of about 0.07.From this information,we can conclude that

The nominal price of a desk increased from $20 in 2005 to $65 in 2016.The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016.We can say that

What might explain a professional baseball player having lower production the year after signing a multimillion dollar contract?

Leisure is an inferior good for Assel.In response to an increase in the wage rate,she will

Why would you expect the demand for diamond jewelry to fall faster than plastic,costume jewelry when all incomes fall?

A backward-bending labor supply curve implies that

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

What is the primary difference between the substitution and the income effect of a price change?

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

-The above figure shows Larry's indifference map and budget lines for ham and pork.Which of the following statements is TRUE?

Consider two lottery winners,Tino who is 65 years old and Sasha who is 32 years old.Which of these two would be expected to have the larger income effect,all else equal?

A demand curve for a Giffen good would be

The price of leisure

The real wage in Fantasyland has been constant since 1950.The nominal wage in 2015 was $100,and the Consumer Price Index (CPI)was 200 in 2015.What was the nominal wage in 2002 if the CPI was 50 in 2002?

In the case of a normal good,

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

-The above figure shows a consumer's indifference curves for soda and all other goods.Assuming a budget of $100,derive the consumer's demand for soda for prices of $4 and $10 per case of soda.Estimate the price elasticity of demand for soda.

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

Median household income is $50,000 per year.The typical household spends about $125 per year on milk,which has an income elasticity of about 0.07.From this information,we can conclude that

The nominal price of a desk increased from $20 in 2005 to $65 in 2016.The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016.We can say that

What might explain a professional baseball player having lower production the year after signing a multimillion dollar contract?

Leisure is an inferior good for Assel.In response to an increase in the wage rate,she will

Why would you expect the demand for diamond jewelry to fall faster than plastic,costume jewelry when all incomes fall?

A backward-bending labor supply curve implies that

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

What is the primary difference between the substitution and the income effect of a price change?

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