Exam 8:Slutsky Equation-Part A

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Cindy consumes goods x and y.Her demand for x is given by x(p_x,m)= 0.05m -5.15p_x.Now her income is $419,the price of x is $3,and the price of y is $1.If the price of x rises to $4 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS,then

(Multiple Choice)

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Question 21

Maude thinks delphiniums and hollyhocks are perfect substitutes,one for one.If delphiniums currently cost $2 per unit and hollyhocks cost $3 per unit and if the price of delphiniums rises to $7 per unit,

(Multiple Choice)

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Question 22

Walt considers x and y to be perfect substitutes.They originally cost $10 and $9 respectively.His income is $720.One day the price of x drops to $8.

(Multiple Choice)

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Question 23

Draw two different diagrams,one illustrating the Slutsky version of income and substitution effects and the other illustrating the Hicks version of income and substitution effects.How do these two notions differ?

(Essay)

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Question 24

Charlie's utility function is x_Ax_B.The price of apples used to be $1,the price of bananas used to be $2,and his income used to be $40.If the price of apples increased to $5 and the price of bananas stayed constant,the substitution effect on Charlie's apple consumption would reduce his consumption by

(Multiple Choice)

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Question 25

Suppose a consumer has strictly convex preferences and her Engel curve for a good is a vertical line for some range of income.In that same income range,her demand curve for the good slopes down.

(True/False)

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Question 26

The Hicks version of the substitution effect of a price change measures the change in a consumer's demand if the consumer's income were changed just enough so the consumer would remain on the same indifference curve as before the price change.

(True/False)

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Question 27

John purchases two goods,x and y.Good x is an inferior good for some range of income.There must be another range of income for which good x is a normal good.

(True/False)

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Question 28

Use a diagram to prove that in case there are two goods,the substitution effect of an increase in the price of good x reduces the demand for good x.

(Essay)

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Question 29

Polly consumes crackers and fruit.The price of fruit rose and the price of crackers stayed constant.The income effect on Polly's demand is

(Multiple Choice)

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Question 30

Carlos consumes only two goods,apples and bananas.His utility function is given by U(x,y)=a³b².He is endowed with w_a apples and w_b bananas.Unaware that prices are about to change,Carlos buys the quantities of apples and bananas that maximize his utility subject to his budget constraint.After he has made his purchases but before he has eaten them,the relative prices change.Carlos is then free to make further trades at the new relative prices if he wishes.

(Multiple Choice)

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Question 31

A consumer has the utility function U(x,y)=x +2y^1/2.The price of good x is 2 and the price of good y is 1.The consumer's income is 20.If the price of good y rises to 2,then entire change in demand for y is due to the substitution effect.

(True/False)

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Question 32

Suppose that Agatha has $465 to spend on tickets for her trip.She intends to spend the entire amount $465 on tickets and prefers traveling first class to traveling second class.She needs to travel a total of 1,500 miles.Suppose that the price of first-class tickets is $.40 per mile and the price of second-class tickets is $.10 per mile.How many miles will she travel by second class?

(Multiple Choice)

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Question 33

Suppose that Agatha has $825 to spend on tickets for her trip.She intends to spend the entire amount $825 on tickets and prefers traveling first class to traveling second class.She needs to travel a total of 1,500 miles.Suppose that the price of first-class tickets is $.60 per mile and the price of second-class tickets is $.30 per mile.How many miles will she travel by second class?

(Multiple Choice)

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Question 34

An increase in the price of a Giffen good makes the people who consume that good better off.

(True/False)

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Question 35

The following can be said about the income and substitution effects of a price increase on the demand for a good whose price rose:

(Multiple Choice)

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Question 36

Cindy consumes goods x and y.Her demand for x is given by x(p_x,m)= 0.04m -4.24p_x.Now her income is $322,the price of x is $2,and the price of y is $1.If the price of x rises to $3 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS,then

(Multiple Choice)

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Question 37

The Slutsky substitution effect measures the movement between two points on the same indifference curve.

(True/False)

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Question 38

Rob consumes two goods,x and y.He has an allowance of $50 per week and is not endowed with either of the goods.If the price of good x increases and his substitution and income effects change demand in opposite directions,

(Multiple Choice)

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Question 39

When the price of a good rises and income remains constant,there is a substitution effect on demand but there cannot be an income effect.

(True/False)

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Question 40

Showing 21 - 40 of 51

Exam 8:Slutsky Equation-Part A

Cindy consumes goods x and y.Her demand for x is given by x(px,m)= 0.05m -5.15px.Now her income is $419,the price of x is $3,and the price of y is $1.If the price of x rises to $4 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS,then

Maude thinks delphiniums and hollyhocks are perfect substitutes,one for one.If delphiniums currently cost $2 per unit and hollyhocks cost $3 per unit and if the price of delphiniums rises to $7 per unit,

Walt considers x and y to be perfect substitutes.They originally cost $10 and $9 respectively.His income is $720.One day the price of x drops to $8.

Draw two different diagrams,one illustrating the Slutsky version of income and substitution effects and the other illustrating the Hicks version of income and substitution effects.How do these two notions differ?

Suppose a consumer has strictly convex preferences and her Engel curve for a good is a vertical line for some range of income.In that same income range,her demand curve for the good slopes down.

The Hicks version of the substitution effect of a price change measures the change in a consumer's demand if the consumer's income were changed just enough so the consumer would remain on the same indifference curve as before the price change.

John purchases two goods,x and y.Good x is an inferior good for some range of income.There must be another range of income for which good x is a normal good.

Use a diagram to prove that in case there are two goods,the substitution effect of an increase in the price of good x reduces the demand for good x.

Polly consumes crackers and fruit.The price of fruit rose and the price of crackers stayed constant.The income effect on Polly's demand is

A consumer has the utility function U(x,y)=x +2y1/2.The price of good x is 2 and the price of good y is 1.The consumer's income is 20.If the price of good y rises to 2,then entire change in demand for y is due to the substitution effect.

An increase in the price of a Giffen good makes the people who consume that good better off.

The following can be said about the income and substitution effects of a price increase on the demand for a good whose price rose:

Cindy consumes goods x and y.Her demand for x is given by x(px,m)= 0.04m -4.24px.Now her income is $322,the price of x is $2,and the price of y is $1.If the price of x rises to $3 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS,then

The Slutsky substitution effect measures the movement between two points on the same indifference curve.

Rob consumes two goods,x and y.He has an allowance of $50 per week and is not endowed with either of the goods.If the price of good x increases and his substitution and income effects change demand in opposite directions,

When the price of a good rises and income remains constant,there is a substitution effect on demand but there cannot be an income effect.

Demand-Part A

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics-Part A

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters

A consumer has the utility function U(x,y)=x +2y^1/2.The price of good x is 2 and the price of good y is 1.The consumer's income is 20.If the price of good y rises to 2,then entire change in demand for y is due to the substitution effect.