Question 1

The substitution effect can be measured holding ________ constant.

Accepted Answer

A) income 
B) utility 
C) the price of one good 
D) the price of all goods 
A) income 
B) utility 
C) the price of one good 
D) the price of all goods

Question 2

-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 3

Suppose the only two goods you consume are wine and roses.On Tuesday,the price of wine goes up and at the same time your income increases by just enough so that you are equally happy as you were on Monday.What happens to the amount of wine you consume? Are you able to afford the same bundle as you did on Monday? Use a graph of budget constraints and indifference curves to illustrate your answer.

Accepted Answer

The result is a pure substitution effect

Question 4

Andrew's union has signed a new wage contract for the coming year.It promises to increase Andrew's wages in the next year so that he can keep on consuming the same bundle of goods when the prices go up.Should Andrew anticipate being happier this year (before prices rise)or next year (after prices rise)? Use a graph to demonstrate how you can tell this.Be clear!

Accepted Answer

If prices all rise by the same percentag

Question 5

Richard receives government transfer payments and currently consumes five guns and six 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 five guns and six goose livers.Does this constitute a true cost-of-living adjustment?

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 6

Darwin's preferences are given by U(q1,q2)= q1.5 + q2.Derive the demand equations for q1 and q2.Assume prices and income are such that both goods are consumed in strictly positive quantities.

Accepted Answer

Using the substitution method,

Question 7

Jose consumes wallets (q1)and a composite of other goods (q2).The price of wallets is p1 and the price of other goods is p2 = 1.Jose's utility from wallets depends also on his income-with a higher income,he values a wallet more because he has more to put inside it! His utility is given by the equation
U(q1,q2)= q1Yq2
Derive Jose's demand for wallets.

Accepted Answer

Question 8

A Consumer Price Index 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 9

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 10

Jon spends all of his income on energy drinks (E)regardless of the price and his income.Derive Jon's demand equation for energy drinks,E*(p,Y).

Accepted Answer

The answer of Jon spends all of his income on...

Question 11

-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.What is MRS for the point on Bobby's demand curve for snacks where price of snacks is $0.5?

Accepted Answer

A) -1 
B) -0.5 
C) -2 
D) Not enough information 
A) -1 
B) -0.5 
C) -2 
D) Not enough information

Question 12

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

Accepted Answer

A) substitution effect on coffee is positive,and the income effect on coffee is positive. 
B) substitution effect on coffee is ambiguous,and the income effect on coffee is ambiguous. 
C) substitution effect on coffee is positive,and the income effect on coffee is ambiguous. 
D) substitution effect on coffee is ambiguous,and the income effect on coffee is positive. 
A) substitution effect on coffee is positive,and the income effect on coffee is positive. 
B) substitution effect on coffee is ambiguous,and the income effect on coffee is ambiguous. 
C) substitution effect on coffee is positive,and the income effect on coffee is ambiguous. 
D) substitution effect on coffee is ambiguous,and the income effect on coffee is positive.

Question 13

Rachel spends her income,Y,on Rock Shows (R)and Sunglasses (S)with prices pR and pS.Rachel's preferences are given by the Cobb-Douglas utility function
U(X,Y)= R.8S.2
a.Write out the Lagrangian for Rachel's utility-maximization problem.
b.Use the Lagrangian to derive Rachel's optimal choice, (R*,S*).
c.For a given utility level,U0,derive Rachel's Expenditure function E(pR,pS,U0).
d.Use the Expenditure function to derive Rachel's compensated demand for Rock Shows.

Accepted Answer

a.The Lagrangian is L = R^.8S^.2 + [Y - p_RR - p

Question 14

If the income elasticity of potatoes is -0.7,then the income effect caused by a price decrease of potatoes

Accepted Answer

A) tends to increase the consumption of potatoes. 
B) tends to decrease the consumption of potatoes. 
C) is less than the substitution effect. 
D) None of the above. 
A) tends to increase the consumption of potatoes. 
B) tends to decrease the consumption of potatoes. 
C) is less than the substitution effect. 
D) None of the above.

Question 15

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 16

Alison consumes only tea and cookies and consumes them only in equal proportions.What is Alison's income elasticity of demand for tea?

Accepted Answer

First,derive the demand equati

Question 17

Suppose the price of X goes up and a consumer goes on consuming the exact same amount of X as before.Then X cannot be an inferior good.

Accepted Answer

@#IMG-DLM& False.X must be an inferior good.The su

Question 18

-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,Bobby's utility

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 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

Suppose a graph is drawn to show a consumer's preferences for football tickets and basketball tickets.The quantity of football tickets is measured on the horizontal axis.If the price-consumption curve is horizontal when the price of football tickets changes,then

Accepted Answer

A) football tickets are an inferior good. 
B) the demand for football tickets is perfectly elastic. 
C) the demand for football tickets is unit elastic. 
D) the demand curve for football tickets will be horizontal. 
A) football tickets are an inferior good. 
B) the demand for football tickets is perfectly elastic. 
C) the demand for football tickets is unit elastic. 
D) the demand curve for football tickets will be horizontal.

The substitution effect can be measured holding ________ constant.

-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?

Darwin's preferences are given by U(q₁,q₂)= q₁^.5 + q₂.Derive the demand equations for q₁ and q₂.Assume prices and income are such that both goods are consumed in strictly positive quantities.

A Consumer Price Index adjustment overcompensates for inflation because it ignores

In the case of a normal good,

Jon spends all of his income on energy drinks (E)regardless of the price and his income.Derive Jon's demand equation for energy drinks,E*(p,Y).

-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.What is MRS for the point on Bobby's demand curve for snacks where price of snacks is $0.5?

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

If the income elasticity of potatoes is -0.7,then the income effect caused by a price decrease of potatoes

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

Alison consumes only tea and cookies and consumes them only in equal proportions.What is Alison's income elasticity of demand for tea?

Suppose the price of X goes up and a consumer goes on consuming the exact same amount of X as before.Then X cannot be an inferior good.

-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,Bobby's utility

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

Suppose a graph is drawn to show a consumer's preferences for football tickets and basketball tickets.The quantity of football tickets is measured on the horizontal axis.If the price-consumption curve is horizontal when the price of football tickets changes,then

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

The substitution effect can be measured holding ________ constant.

-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?

Darwin's preferences are given by U(q1,q2)= q1.5 + q2.Derive the demand equations for q1 and q2.Assume prices and income are such that both goods are consumed in strictly positive quantities.

A Consumer Price Index adjustment overcompensates for inflation because it ignores

In the case of a normal good,

Jon spends all of his income on energy drinks (E)regardless of the price and his income.Derive Jon's demand equation for energy drinks,E*(p,Y).

-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.What is MRS for the point on Bobby's demand curve for snacks where price of snacks is $0.5?

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

If the income elasticity of potatoes is -0.7,then the income effect caused by a price decrease of potatoes

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

Alison consumes only tea and cookies and consumes them only in equal proportions.What is Alison's income elasticity of demand for tea?

Suppose the price of X goes up and a consumer goes on consuming the exact same amount of X as before.Then X cannot be an inferior good.

-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,Bobby's utility

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

Suppose a graph is drawn to show a consumer's preferences for football tickets and basketball tickets.The quantity of football tickets is measured on the horizontal axis.If the price-consumption curve is horizontal when the price of football tickets changes,then

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

Darwin's preferences are given by U(q₁,q₂)= q₁^.5 + q₂.Derive the demand equations for q₁ and q₂.Assume prices and income are such that both goods are consumed in strictly positive quantities.