Question 1

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. C

Question 2

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

Accepted Answer

A) compensating variation. 
B) structured settlement. 
C) equivalent variation. 
D) consumer surplus. 
A) compensating variation. 
B) structured settlement. 
C) equivalent variation. 
D) consumer surplus. A

Question 3

Using a Paasche index to calculate the Consumer Price Index (CPI)

Accepted Answer

A) weights quantities with current prices. 
B) weights prices with base-year quantities. 
C) weights quantities with base-year prices. 
D) weights prices with current year quantities. 
A) weights quantities with current prices. 
B) weights prices with base-year quantities. 
C) weights quantities with base-year prices. 
D) weights prices with current year quantities. D

Question 4

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Accepted Answer

A) True 
 B)False

Question 5

Leisure is an inferior good for Assel. In response to an increase in the wage rate, she will

Accepted Answer

A) supply fewer hours of labor. 
B) supply more hours of labor. 
C) enjoy more hours of leisure. 
D) None of the above. 
A) supply fewer hours of labor. 
B) supply more hours of labor. 
C) enjoy more hours of leisure. 
D) None of the above.

Question 6

Inflation over time necessarily makes consumers worse off.

Accepted Answer

A) True 
 B)False

Question 7

Due to inflation, nominal prices are usually

Accepted Answer

A) equal to real prices. 
B) smaller than real prices. 
C) larger than real prices. 
D) a constant proportion different from real prices. 
A) equal to real prices. 
B) smaller than real prices. 
C) larger than real prices. 
D) a constant proportion different from real prices.

Question 8

-When John's income was low, he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners. Now that his income is high, a pay raise causes him to dine out more often and buy fewer frozen dinners. Which graph in the above figure best represents John's Engel curve for frozen dinners?

Accepted Answer

A) Graph A 
B) Graph B 
C) Graph C 
D) Graph D 
A) Graph A 
B) Graph B 
C) Graph C 
D) Graph D

Question 9

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

Accepted Answer

A positive slope of the income consumpti

Question 10

Why would you expect the demand for diamond jewelry to fall faster than plastic, costume jewelry when all incomes fall?

Accepted Answer

The income elasticities differ

Question 11

If consumer income and prices increase by the same percentage,

Accepted Answer

A) the consumer will buy more of both goods. 
B) the consumer will buy more of both goods if they are both normal goods. 
C) the consumer will buy less of both goods if they are both inferior goods. 
D) the consumer's utility maximizing bundle stays the same. 
A) the consumer will buy more of both goods. 
B) the consumer will buy more of both goods if they are both normal goods. 
C) the consumer will buy less of both goods if they are both inferior goods. 
D) the consumer's utility maximizing bundle stays the same.

Question 12

Both Sally and Sam receive a 10% raise in a single year. Sally increases her demand for ground beef whereas Sam decreases his demand for ground beef.

Accepted Answer

A) This is impossible. 
B) This is only possible if Sally considers ground beef an inferior good, and Sam views it as a normal good. 
C) This is only possible if Sally has lower income than Sam. 
D) This is only possible if Sally considers ground beef a normal good and Sam views it as an inferior good. 
A) This is impossible. 
B) This is only possible if Sally considers ground beef an inferior good, and Sam views it as a normal good. 
C) This is only possible if Sally has lower income than Sam. 
D) This is only possible if Sally considers ground beef a normal good and Sam views it as an inferior good.

Question 13

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 southern or western 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 southern or western movement on the indifference map. 
D) All of the above.

Question 14

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes, then the demand curve for that good will be upward sloping.

Accepted Answer

A) True 
 B)False

Question 15

If a good is an inferior good, then its

Accepted Answer

A) demand curve will be upward sloping. 
B) income effect reinforces the substitution effect. 
C) income elasticity is negative. 
D) Engel curve cannot be drawn. 
A) demand curve will be upward sloping. 
B) income effect reinforces the substitution effect. 
C) income elasticity is negative. 
D) Engel curve cannot be drawn.

Question 16

Empirical studies have found that the labor supply curves for most parts of the population are

Accepted Answer

A) backward-bending. 
B) upward-sloping. 
C) downward-sloping. 
D) nearly vertical. 
A) backward-bending. 
B) upward-sloping. 
C) downward-sloping. 
D) nearly vertical.

Question 17

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a rate of 10%. Draw Joe's budget line.

Accepted Answer

@#IMG-DLM& See the above figure. On the graph, his

Question 18

An increase in the price of a good causes

Accepted Answer

A) a change in the slope of the budget line. 
B) an increase in the consumption of that good. 
C) a rightward shift of the demand curve for that good. 
D) a parallel rightward shift of the budget line. 
A) a change in the slope of the budget line. 
B) an increase in the consumption of that good. 
C) a rightward shift of the demand curve for that good. 
D) a parallel rightward shift of the budget line.

Question 19

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

Accepted Answer

A) has become steeper as a result. 
B) has become flatter as a result. 
C) has not changed as a result. 
D) has disappeared as a result. 
A) has become steeper as a result. 
B) has become flatter as a result. 
C) has not changed as a result. 
D) has disappeared as a result.

Question 20

In response to an increase in the wage rate, the substitution effect will cause a person to

Accepted Answer

A) supply fewer hours of labor. 
B) supply more hours of labor. 
C) supply the same hours of labor. 
D) have a backward bend in her labor supply curve. 
A) supply fewer hours of labor. 
B) supply more hours of labor. 
C) supply the same hours of labor. 
D) have a backward bend in her labor supply curve.

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

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

Using a Paasche index to calculate the Consumer Price Index (CPI)

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Leisure is an inferior good for Assel. In response to an increase in the wage rate, she will

Inflation over time necessarily makes consumers worse off.

Due to inflation, nominal prices are usually

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

Why would you expect the demand for diamond jewelry to fall faster than plastic, costume jewelry when all incomes fall?

If consumer income and prices increase by the same percentage,

Both Sally and Sam receive a 10% raise in a single year. Sally increases her demand for ground beef whereas Sam decreases his demand for ground beef.

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

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes, then the demand curve for that good will be upward sloping.

If a good is an inferior good, then its

Empirical studies have found that the labor supply curves for most parts of the population are

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a rate of 10%. Draw Joe's budget line.

An increase in the price of a good causes

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

In response to an increase in the wage rate, the substitution effect will cause a person to

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 5: Applying Consumer Theory

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

The amount of money one would have to give to a consumer to offset the harm from a price increase is called

Using a Paasche index to calculate the Consumer Price Index (CPI)

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Leisure is an inferior good for Assel. In response to an increase in the wage rate, she will

Inflation over time necessarily makes consumers worse off.

Due to inflation, nominal prices are usually

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

Why would you expect the demand for diamond jewelry to fall faster than plastic, costume jewelry when all incomes fall?

If consumer income and prices increase by the same percentage,

Both Sally and Sam receive a 10% raise in a single year. Sally increases her demand for ground beef whereas Sam decreases his demand for ground beef.

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

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes, then the demand curve for that good will be upward sloping.

If a good is an inferior good, then its

Empirical studies have found that the labor supply curves for most parts of the population are

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a rate of 10%. Draw Joe's budget line.

An increase in the price of a good causes

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

In response to an increase in the wage rate, the substitution effect will cause a person to

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters