Question 1

If goods A and B are complements:

Accepted Answer

A) the own price elasticity may be superior. 
B) a decrease in the price of B causes the demand for A to increase. 
C) they are also substitutes. 
D) an increase in the price of A causes the demand for B to increase. 
A) the own price elasticity may be superior. 
B) a decrease in the price of B causes the demand for A to increase. 
C) they are also substitutes. 
D) an increase in the price of A causes the demand for B to increase.

Question 2

Suppose your income doubled and, at the same time, the prices of all goods doubled. Suppose you continue to purchase exactly the same bundle as before. What would the law of demand suggest about this behaviour?

Accepted Answer

A) Reasonable, because the relative price did not change. 
B) Uncertain, because we don't know if the goods you purchase are normal or not. 
C) Once you have a chance to adjust, you will purchase the low cost goods. 
D) Not possible, because when the price goes up the quantity demanded always falls. 
A) Reasonable, because the relative price did not change. 
B) Uncertain, because we don't know if the goods you purchase are normal or not. 
C) Once you have a chance to adjust, you will purchase the low cost goods. 
D) Not possible, because when the price goes up the quantity demanded always falls.

Question 3

A consumer's demand functions depend on:

Accepted Answer

A) her income and the prices of goods and services. 
B) the supply of goods and services. 
C) weakly convex indifference curves. 
D) careful mathematical analysis. 
A) her income and the prices of goods and services. 
B) the supply of goods and services. 
C) weakly convex indifference curves. 
D) careful mathematical analysis.

Question 4

Brad lives in a two good world consisting of x and y. Brad has a budget of B = 120 and an endowment of good x
equal to 90 units. Brad can either buy or sell good x in a common market for the price px. The price of y is 1.
Brad's utility function is of the form U(x,y)= xy
a)Write down Brad's budget constraint.
b)Find expressions for Brad's demand functions for x and y.
c)At what values of px is Brad a net buyer of good x , at what values is he a net seller, and at what price does Brad's demand for x just equal his endowment?

Accepted Answer

a)p_xx + p_yy = 120 + 90p_x b)x = (1

Question 5

Marc consumes apples (x)and oranges (y). If Marc's demand function for apples is given by: x =
Mpy/2px and Marc's demand for oranges is given by: x = Mpx/2py, then apples and oranges are:

Accepted Answer

A) inferior goods. 
B) inessential goods. 
C) complements. 
D) substitutes. 
A) inferior goods. 
B) inessential goods. 
C) complements. 
D) substitutes.

Question 6

Mr. Inflexible's utility function is U(x1,x2)= min(x1,x2). The price of x1 is $1, the price of x2 is $2, and Mr. Inflexible's budget is $120. If Mr. Inflexible were given the choice between a lump- sum tax and an excise tax which raised the same amount of tax revenue, then:

Accepted Answer

A) he would prefer the excise tax. 
B) he would prefer the lump- sum tax. 
C) he would be indifferent between them. 
D) one cannot say which tax he would prefer. 
A) he would prefer the excise tax. 
B) he would prefer the lump- sum tax. 
C) he would be indifferent between them. 
D) one cannot say which tax he would prefer.

Question 7

If good x1 is a substitute for good x2, then the cross price elasticity of demand for x1 with respect to the price of x2 is:

Accepted Answer

A) zero. 
B) negative. 
C) positive. 
D) undefined. 
A) zero. 
B) negative. 
C) positive. 
D) undefined.

Question 8

Figure 3A
 
-The Engel curves associated with the indifference map in Figure 3A are:

Accepted Answer

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

Question 9

Sally consumes two goods, X and Y. Her utility function is given by the expression
U(X,Y)= X0.4Y0.6 . The current market price of X is $20 per unit, while the market price of Y is $100 per unit. Sally's current income is $10,000.
a)Calculate Sally's demand for X as a function of prices and incomes. Is good X normal?
b)How much X and Y will Sally demand at current market prices? What will Sally's utility be with that consumption?
c)Find the income elasticity and the price elasticity of demand for X.

Accepted Answer

a)x = 0.4M/p_x; y = 0.

Question 10

If Amy spent her entire allowance, she could afford 8 candy bars and 8 comic books a week. She could also just afford 10 candy bars and 4 comic books a week. The price of a candy bar is 50 cents.
a)Draw Amy's budget line.
b)What is the price of a comic book?
c)What is Amy's weekly allowance?

Accepted Answer

a)If comic books are on the ho

Question 11

When the price elasticity of demand for x is greater than one:

Accepted Answer

A) total revenue is negative. 
B) the slope of the total revenue function is positive. 
C) the slope of the total revenue function is negative. 
D) the slope of the total revenue function is zero. 
A) total revenue is negative. 
B) the slope of the total revenue function is positive. 
C) the slope of the total revenue function is negative. 
D) the slope of the total revenue function is zero.

Question 12

Beth consumes two goods, x1 and x2, and her income is $120. The price of x1 is $10, and the price of
X2 is $5. The consumption bundle (4, 18)is:

Accepted Answer

A) well defined. 
B) an unattainable bundle. 
C) an attainable bundle. 
D) on the budget line. 
A) well defined. 
B) an unattainable bundle. 
C) an attainable bundle. 
D) on the budget line.

Question 13

Figure 3B
 
-Which of the following is the pretax budget line in Figure 3B?

Accepted Answer

A) AG 
B) BF 
C) IJ 
D) AH 
A) AG 
B) BF 
C) IJ 
D) AH

Question 14

If two linear demand functions intersect the quantity axis at the same point, then:

Accepted Answer

A) when prices are equal, so are the elasticities. 
B) when quantities are equal, so are the price elasticities. 
C) when prices are equal, so are the quantities. 
D) at the point of intersection the two elasticities are equal to one. 
A) when prices are equal, so are the elasticities. 
B) when quantities are equal, so are the price elasticities. 
C) when prices are equal, so are the quantities. 
D) at the point of intersection the two elasticities are equal to one.

Question 15

Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 burgers. Spaghetti costs $8 per plate and she had $82 in her purse. If s denotes the number of plates of spaghetti and b denotes the number of burgers purchased, which equation describes the budget line of Tammy?

Accepted Answer

A) 5s+6b = 164 
B) 5s+6b = 82 
C) 6s+8b = 82 
D) 16s +14b = 164 
A) 5s+6b = 164 
B) 5s+6b = 82 
C) 6s+8b = 82 
D) 16s +14b = 164

Question 16

Which of the following will not cause a change in the demand for butter?

Accepted Answer

A) a new disease strikes milk cows 
B) the price of butter falls 
C) a frost hits Florida 
D) dairy workers get a wage increase 
A) a new disease strikes milk cows 
B) the price of butter falls 
C) a frost hits Florida 
D) dairy workers get a wage increase

Question 17

Richie's demand function for comic books is x = 30 - 10p where p is the price in dollars and x is the quantity he demands. If the price of comic books is $0.5, what is Richie's price elasticity of demand for comic books?

Accepted Answer

A) - 10 
B) - 1/3 
C) - 1/10 
D) - 1/5 
A) - 10 
B) - 1/3 
C) - 1/10 
D) - 1/5

Question 18

A temporal choice problem involves:

Accepted Answer

A) two goods. 
B) given income and prices. 
C) imperfect information. 
D) intertemporal choices. 
A) two goods. 
B) given income and prices. 
C) imperfect information. 
D) intertemporal choices.

Question 19

Joseph's utility function is given by xA + 2xB, where xA denotes his consumption of apples and xB his consumption of bananas. Suppose a banana cost 50 cents and an apple costs also 50 cents. If his income is $10, then his consumption bundle (xA,xB)is:

Accepted Answer

A) (20,40). 
B) (20,20). 
C) (0,20). 
D) (20,0). 
A) (20,40). 
B) (20,20). 
C) (0,20). 
D) (20,0).

Question 20

In order for a maker of cellophane not to be charged with monopolizing the market, the cross- price elasticity of cellophane and other packaging products has to be:

Accepted Answer

A) high. 
B) low. 
C) not defined. 
D) zero. 
A) high. 
B) low. 
C) not defined. 
D) zero.

If goods A and B are complements:

Suppose your income doubled and, at the same time, the prices of all goods doubled. Suppose you continue to purchase exactly the same bundle as before. What would the law of demand suggest about this behaviour?

A consumer's demand functions depend on:

Marc consumes apples (x)and oranges (y). If Marc's demand function for apples is given by: x = Mp_y/2p_xand Marc's demand for oranges is given by: x = Mp_x/2p_y,then apples and oranges are:

Mr. Inflexible's utility function is U(x₁,x₂)= min(x_1,x₂). The price of x₁is $1, the price of x₂is $2, and Mr. Inflexible's budget is $120. If Mr. Inflexible were given the choice between a lump- sum tax and an excise tax which raised the same amount of tax revenue, then:

If good x₁is a substitute for good x_2,then the cross price elasticity of demand for x₁with respect to the price of x₂is:

Figure 3A -The Engel curves associated with the indifference map in Figure 3A are:

If Amy spent her entire allowance, she could afford 8 candy bars and 8 comic books a week. She could also just afford 10 candy bars and 4 comic books a week. The price of a candy bar is 50 cents. a)Draw Amy's budget line. b)What is the price of a comic book? c)What is Amy's weekly allowance?

When the price elasticity of demand for x is greater than one:

Beth consumes two goods, x₁and x₂, and her income is $120. The price of x₁is $10, and the price of X₂is $5. The consumption bundle (4, 18)is:

Figure 3B -Which of the following is the pretax budget line in Figure 3B?

If two linear demand functions intersect the quantity axis at the same point, then:

Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 burgers. Spaghetti costs $8 per plate and she had $82 in her purse. If s denotes the number of plates of spaghetti and b denotes the number of burgers purchased, which equation describes the budget line of Tammy?

Which of the following will not cause a change in the demand for butter?

Richie's demand function for comic books is x = 30 - 10p where p is the price in dollars and x is the quantity he demands. If the price of comic books is $0.5, what is Richie's price elasticity of demand for comic books?

A temporal choice problem involves:

Joseph's utility function is given by x_A+ 2x_B, where x_Adenotes his consumption of apples and x_B his consumption of bananas. Suppose a banana cost 50 cents and an apple costs also 50 cents. If his income is $10, then his consumption bundle (x_A,x_B)is:

In order for a maker of cellophane not to be charged with monopolizing the market, the cross- price elasticity of cellophane and other packaging products has to be:

Microeconomics: a Working Methodology

A Theory of Preferences

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

Production Cost: Many Variable Inputs

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Exam 3: Demand Theory

If goods A and B are complements:

Suppose your income doubled and, at the same time, the prices of all goods doubled. Suppose you continue to purchase exactly the same bundle as before. What would the law of demand suggest about this behaviour?

A consumer's demand functions depend on:

Marc consumes apples (x)and oranges (y). If Marc's demand function for apples is given by: x = Mpy/2px and Marc's demand for oranges is given by: x = Mpx/2py, then apples and oranges are:

Mr. Inflexible's utility function is U(x1,x2)= min(x1,x2). The price of x1 is $1, the price of x2 is $2, and Mr. Inflexible's budget is $120. If Mr. Inflexible were given the choice between a lump- sum tax and an excise tax which raised the same amount of tax revenue, then:

If good x1 is a substitute for good x2, then the cross price elasticity of demand for x1 with respect to the price of x2 is:

Figure 3A -The Engel curves associated with the indifference map in Figure 3A are:

If Amy spent her entire allowance, she could afford 8 candy bars and 8 comic books a week. She could also just afford 10 candy bars and 4 comic books a week. The price of a candy bar is 50 cents. a)Draw Amy's budget line. b)What is the price of a comic book? c)What is Amy's weekly allowance?

When the price elasticity of demand for x is greater than one:

Beth consumes two goods, x1 and x2, and her income is $120. The price of x1 is $10, and the price of X2 is $5. The consumption bundle (4, 18)is:

Figure 3B -Which of the following is the pretax budget line in Figure 3B?

If two linear demand functions intersect the quantity axis at the same point, then:

Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 burgers. Spaghetti costs $8 per plate and she had $82 in her purse. If s denotes the number of plates of spaghetti and b denotes the number of burgers purchased, which equation describes the budget line of Tammy?

Which of the following will not cause a change in the demand for butter?

Richie's demand function for comic books is x = 30 - 10p where p is the price in dollars and x is the quantity he demands. If the price of comic books is $0.5, what is Richie's price elasticity of demand for comic books?

A temporal choice problem involves:

Joseph's utility function is given by xA + 2xB, where xA denotes his consumption of apples and xB his consumption of bananas. Suppose a banana cost 50 cents and an apple costs also 50 cents. If his income is $10, then his consumption bundle (xA,xB)is:

In order for a maker of cellophane not to be charged with monopolizing the market, the cross- price elasticity of cellophane and other packaging products has to be:

Microeconomics: a Working Methodology

A Theory of Preferences

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

Production Cost: Many Variable Inputs

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Marc consumes apples (x)and oranges (y). If Marc's demand function for apples is given by: x = Mp_y/2p_xand Marc's demand for oranges is given by: x = Mp_x/2p_y,then apples and oranges are:

Mr. Inflexible's utility function is U(x₁,x₂)= min(x_1,x₂). The price of x₁is $1, the price of x₂is $2, and Mr. Inflexible's budget is $120. If Mr. Inflexible were given the choice between a lump- sum tax and an excise tax which raised the same amount of tax revenue, then:

If good x₁is a substitute for good x_2,then the cross price elasticity of demand for x₁with respect to the price of x₂is:

Beth consumes two goods, x₁and x₂, and her income is $120. The price of x₁is $10, and the price of X₂is $5. The consumption bundle (4, 18)is:

Joseph's utility function is given by x_A+ 2x_B, where x_Adenotes his consumption of apples and x_B his consumption of bananas. Suppose a banana cost 50 cents and an apple costs also 50 cents. If his income is $10, then his consumption bundle (x_A,x_B)is: