Question 1

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 2

When measuring the substitution effect,one uses the change along

Accepted Answer

A) the old indifference curve. 
B) the new indifference curve. 
C) either the old or the new indifference curve. 
D) the budget constraint. 
A) the old indifference curve. 
B) the new indifference curve. 
C) either the old or the new indifference curve. 
D) the budget constraint.

Question 3

Using the CPI to compensate workers for inflation is appropriate because,in the face of a change in relative prices,people should be allowed to purchase the same bundle as they did before the price changes.

Accepted Answer

A) True 
 B)False

Question 4

Why can't all goods be inferior?

Accepted Answer

If all goods were inferior,an increase i

Question 5

A Californian student consumes Internet services (I)and books (B).Her preferences are represented by a Cobb-Douglas utility function:
U(I,B)= I1/4B1/4
The prices of each good is $2 and the student has an income of $200.Over the course of the past year,the price of internet services has risen to $4,but the price of books has remained the same.The government has decided provide this student with additional money to compensate for the higher price of internet services.In order to determine the transfer the government has three consultants who have made the following suggestions:
Consultant A: The student's income should be increased by a percentage found using a consumer price index (CPI).
Consultant B: The additional income should allow the student to get her initial level of utility.
a.Find the consumer's optimal bundle before the increase in price occurs.
b.Find the consumer's optimal bundle after the increase in price occurs with income still at $200.
c.Find the amount of the transfer implied by consultant A.
d.Is the student necessarily better or worse off than before from such a transfer implied by consultant A? Explain why.
e.Is the transfer implied by consultant B more or less than the amount implied by A? Explain.
What is the precise dollar amount implied by consultant B?

Accepted Answer

a.MRS = B/I
MRT = 1
B = I
2B + 2I = 2I +

Question 6

Bob's winery sells bottles of their expensive,high-quality wine and a cheaper low-quality wine.Visitors have to drive 45 minutes to get to Bob's winery.Bob also sells his wine at a shop in the city where consumers don't have to drive a long distance and charges the same prices.Assuming the preferences of the clients that come to the winery and the city store are the same,explain why Bob tends to sell the expensive wine in a greater proportion in the winery than the urban store.

Accepted Answer

The relative price of expensive wine to

Question 7

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

Accepted Answer

A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods. 
B) Higher-price goods increase in price by a greater percentage than do lower-priced goods. 
C) All goods change in price by the same amount. 
D) All goods change in price by the same percentage. 
A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods. 
B) Higher-price goods increase in price by a greater percentage than do lower-priced goods. 
C) All goods change in price by the same amount. 
D) All goods change in price by the same percentage.

Question 8

-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's demand for snacks is

Accepted Answer

A) unit elastic. 
B) elastic. 
C) inelastic. 
D) perfectly elastic. 
A) unit elastic. 
B) elastic. 
C) inelastic. 
D) perfectly elastic.

Question 9

Edgar only consumes protein shakes with his income,I.The price of shakes is p.
a.What is Edgar's demand equation for shakes?
b.Can protein shakes be an inferior good for Edgar? Explain.
c.What is the price elasticity of Edgar's demand for shakes? Derive using calculus.
d.What is the income elasticity of Edgar's demand for shakes?

Accepted Answer

a.Q = I/p
b.No,as income rises,Edgar wil

Question 10

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 11

The compensated demand curve holds the consumer's utility fixed as the price changes.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Use the Slutsky equation to show that a Giffen good must be an inferior good,BUT an inferior good need not be a Giffen good.

Accepted Answer

The Slutsky equation may be written as d

Question 14

Sylvia allocates her monthly income between Food and Housing.Her budget share spent on food in a given month is always 30%,and for Sylvia,food is a "necessity" (income elasticity between zero and one).Derive the maximum and minimum values for the income elasticity of demand for housing.

Accepted Answer

The weighted (by budget share)sum of inc

Question 15

To separate the income and substitute effects,the imaginary budget line should be

Accepted Answer

A) tangent to the new indifference curve and parallel to the new budget line. 
B) tangent to the new indifference curve and parallel to the old budget line. 
C) tangent to the old indifference curve and parallel to the new budget line. 
D) tangent to the old indifference curve and parallel to the old budget line. 
A) tangent to the new indifference curve and parallel to the new budget line. 
B) tangent to the new indifference curve and parallel to the old budget line. 
C) tangent to the old indifference curve and parallel to the new budget line. 
D) tangent to the old indifference curve and parallel to the old budget line.

Question 16

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 17

If the income elasticity of hamburgers is -0.8 for John,then his share of income spent on hamburgers will ________ when his income increases.

Accepted Answer

A) increase 
B) decrease 
C) remain the same 
D) Not enough information 
A) increase 
B) decrease 
C) remain the same 
D) Not enough information

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 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 19

There are only two goods for John to consume: food and clothing.If clothing is an inferior good for John when his income rises to $100,000,then food is

Accepted Answer

A) also an inferior good. 
B) a normal good. 
C) Either inferior or normal could be possible. 
D) Not enough information 
A) also an inferior good. 
B) a normal good. 
C) Either inferior or normal could be possible. 
D) Not enough information

Question 20

When income increases by 1%,the quantity demanded of a good decreases by 2%.What is the income elasticity of the good? Is the good normal or inferior? Why?

Accepted Answer

The income elasticit

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.

When measuring the substitution effect,one uses the change along

Using the CPI to compensate workers for inflation is appropriate because,in the face of a change in relative prices,people should be allowed to purchase the same bundle as they did before the price changes.

Why can't all goods be inferior?

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

-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's demand for snacks is

An inferior good exhibits

The compensated demand curve holds the consumer's utility fixed as the price changes.

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)

Use the Slutsky equation to show that a Giffen good must be an inferior good,BUT an inferior good need not be a Giffen good.

Sylvia allocates her monthly income between Food and Housing.Her budget share spent on food in a given month is always 30%,and for Sylvia,food is a "necessity" (income elasticity between zero and one).Derive the maximum and minimum values for the income elasticity of demand for housing.

To separate the income and substitute effects,the imaginary budget line should be

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

If the income elasticity of hamburgers is -0.8 for John,then his share of income spent on hamburgers will ________ when his income increases.

-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?

There are only two goods for John to consume: food and clothing.If clothing is an inferior good for John when his income rises to $100,000,then food is

When income increases by 1%,the quantity demanded of a good decreases by 2%.What is the income elasticity of the good? Is the good normal or inferior? Why?

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

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.

When measuring the substitution effect,one uses the change along

Using the CPI to compensate workers for inflation is appropriate because,in the face of a change in relative prices,people should be allowed to purchase the same bundle as they did before the price changes.

Why can't all goods be inferior?

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

-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's demand for snacks is

An inferior good exhibits

The compensated demand curve holds the consumer's utility fixed as the price changes.

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)

Use the Slutsky equation to show that a Giffen good must be an inferior good,BUT an inferior good need not be a Giffen good.

Sylvia allocates her monthly income between Food and Housing.Her budget share spent on food in a given month is always 30%,and for Sylvia,food is a "necessity" (income elasticity between zero and one).Derive the maximum and minimum values for the income elasticity of demand for housing.

To separate the income and substitute effects,the imaginary budget line should be

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

If the income elasticity of hamburgers is -0.8 for John,then his share of income spent on hamburgers will ________ when his income increases.

-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?

There are only two goods for John to consume: food and clothing.If clothing is an inferior good for John when his income rises to $100,000,then food is

When income increases by 1%,the quantity demanded of a good decreases by 2%.What is the income elasticity of the good? Is the good normal or inferior? Why?

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