Exam 4: Demand

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.Bobby views snacks as a(n)

-The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.This information could be used to determine

Suppose Lisa spends all of her money on books and bagels,and a bagel is an inferior good for her.When the price of coffee increases,the

The Slutsky equation shows that,holding the total effect constant,the income effect will be larger for goods that

George's parents let him use the family car whenever he wants,but require that he pays for all gas he uses.George has been driving the car 100 miles per week.His parents want to limit how much he drives the family car,but don't want to impose a major burden on his finances.Mom's plan is to charge him a dollar for each ten miles he drives the car (per week),but to increase his allowance by $10.Dad thinks this plan will have no effect on his driving since he is going to get the money back at the end of the week.Who is right? Explain.

Lewis has preferences given by the Cobb-Douglas utility function U(q₁,q₂)= q₁^aq₂^1-a,where a > 0.Show that Lewis's total amount spent on each good,does not change with the prices.

Employing a fixed-weight index like the Consumer Price Index to adjust a person's salary in response to inflation will overcompensate this person because doing so will allow this person to

According to Revealed Preferences,if a Consumer chooses a more expensive bundle of goods over a cheaper bundle of goods,we can conclude

A movement upward along an upward-sloping Engel curve corresponds to

Due to inflation,nominal prices are usually

Jerry spends his entire income on two goods,Bran and Tea.Every month he spends half of his income on each of these goods.Jerry's income elasticity of demand for Bran is .75.What is the income elasticity of demand for Tea?

If a good is an inferior good,then its

If the Engel curve for a good is upward sloping,the demand curve for that good must be downward sloping.

-The above figure shows Bobby's indifference map for juice and snacks.Assuming income remains unchanged,when the budget line rotates out,the expenditure on snacks

Borem is a big fan of wine from Trader Moe's.Moe's sells a high-quality expensive wine and a cheap low-quality wine.Borem buys both types but tends to buy more bottles of the cheaper wine.Borem later moves to a new city where he must drive a long distance to get his wine at Trader Moe's.Assuming the income effect is small,and that Borem still buys his wine from Moe's,how is he going to change his relative consumption of the expensive and cheap wines?

When John was in college and his income was low,he drank "Red Ribbon" beer.As his income increased,he purchased better-quality beer and less "Red Ribbon." Which graph in the above figure best represents John's Engel curve for "Red Ribbon" beer?

For each of the following statements,define all of the underlined terms.Then,explain why the statement is true or false. a.If a consumer views two goods as perfect substitutes then their optimal choice will be a corner solution. b.The substitution effect from a price increase states that the consumer will always choose a smaller amount of that good to consume.However,the income effect states that consumption can move in either direction. c.Suppose Alf and Bo have convex indifference curves.Alf likes units of "X" more than units of "Y" but Bo likes units of "Y" much more than units of "X." Then,in the optimum,Alf's marginal rate of substitution will be different from Bo's even if they face the same prices. d.All Giffen goods are normal goods,but not all normal goods are Giffen goods. e.Economists assume that preferences are ordinal.This implies that given two utility functions and one is a monotonic transformation of the other,then they represent the same preferences over bundles of goods.

Suppose Ian consumes bread and mustard with his income.He views these goods to be Perfect Complements.He currently consumes 15 units of each good each week.Suppose that the price of Mustard increases by $1/unit and bread increases by $2/unit.Ian's union automatically provides him with a CPI adjustment in his income amounting to an increase by $45.Is Ian better off,worse off,the same or is it uncertain as compared to previously? Explain and provide a graph to demonstrate your answer.

A Giffen good has