Question 1

Suppose the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x changes, then the demand for x is

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) There is not enough information to determine the price elasticity of demand for x. 
A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) There is not enough information to determine the price elasticity of demand for x.

Question 2

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 3

If a good is considered a normal good, the demand curve will shift ________ when income increases because ________.

Accepted Answer

A) right; the income and substitution effects move in the same direction. 
B) right; the income and substitution effects move in the opposite direction. 
C) left; the income and substitution effects move in the same direction. 
D) left; the income and substitution effects move in the opposite direction. 
A) right; the income and substitution effects move in the same direction. 
B) right; the income and substitution effects move in the opposite direction. 
C) left; the income and substitution effects move in the same direction. 
D) left; the income and substitution effects move in the opposite direction.

Question 4

One characteristic of a Giffen good is that it

Accepted Answer

A) is a luxury good. 
B) is an inferior good. 
C) has an upward-sloping Engel curve. 
D) All of the above. 
A) is a luxury good. 
B) is an inferior good. 
C) has an upward-sloping Engel curve. 
D) All of the above.

Question 5

The price of leisure

Accepted Answer

A) is the same for everyone. 
B) depends on the number of hours worked. 
C) is measured as foregone earnings. 
D) is immeasurable. 
A) is the same for everyone. 
B) depends on the number of hours worked. 
C) is measured as foregone earnings. 
D) is immeasurable.

Question 6

-Even though Mary's income is very low, she makes sure that she purchases enough milk for her family to drink. As her income rises, she does buy more milk. Which graph in the above figure best represents Mary's Engel curve for milk?

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 7

Draw two graphs, one directly above the other. On the upper graph, label the vertical axis Good X and label the horizontal axis Good Y. On the lower graph, label the vertical axis the Price of good Y and label the horizontal axis Good Y. In the upper graph, show the income and substitution effects of a decrease in the Price of good Y when Y is a Giffen good. Draw the corresponding demand curve for Good Y in the lower graph.

Accepted Answer

@#IMG-DLM& See the above figure. Point A

Question 8

If a person supplies fewer hours of labor in response to a wage increase, then

Accepted Answer

A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect equals the substitution effect. 
D) the person is not maximizing utility. 
A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect equals the substitution effect. 
D) the person is not maximizing utility.

Question 9

If a person supplies more hours of labor in response to a wage increase, then

Accepted Answer

A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect equals the substitution effect. 
D) the person is not maximizing utility. 
A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect equals the substitution effect. 
D) the person is not maximizing utility.

Question 10

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

Accepted Answer

A) Pork is an inferior good. 
B) Ham is an inferior good. 
C) Neither pork nor ham is an inferior good. 
D) Both ham and pork are inferior goods. 
A) Pork is an inferior good. 
B) Ham is an inferior good. 
C) Neither pork nor ham is an inferior good. 
D) Both ham and pork are inferior goods.

Question 11

In response to an increase in the wage rate, the income effect will usually 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 horizontal 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 horizontal labor supply curve.

Question 12

A movement upward along an upward sloping Engel curve corresponds to

Accepted Answer

A) upward sloping indifference curves. 
B) crossing indifference curves. 
C) a rotation in the budget constraint. 
D) a parallel shift in the budget constraint. 
A) upward sloping indifference curves. 
B) crossing indifference curves. 
C) a rotation in the budget constraint. 
D) a parallel shift in the budget constraint.

Question 13

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 14

-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 15

A percentage increase in the overall price level is called

Accepted Answer

A) cost of living. 
B) inflation. 
C) Paasche index. 
D) Fischer index. 
A) cost of living. 
B) inflation. 
C) Paasche index. 
D) Fischer index.

Question 16

Wealthy people will tend to have vertical labor supply curves

Accepted Answer

A) only if their income effect just offsets their substitution effect. 
B) only if their income effect is greater than their substitution effect. 
C) only if their income effect is less than their substitution effect. 
D) only if they don't have an income effect. 
A) only if their income effect just offsets their substitution effect. 
B) only if their income effect is greater than their substitution effect. 
C) only if their income effect is less than their substitution effect. 
D) only if they don't have an income effect.

Question 17

-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 an increase in the price of soda. From the graph, one can conclude that

Accepted Answer

A) Bobby views soda as an inferior good. 
B) Bobby's demand for soda is perfectly inelastic. 
C) Bobby views soda as a normal good. 
D) the income elasticity of demand for soda is 1. 
A) Bobby views soda as an inferior good. 
B) Bobby's demand for soda is perfectly inelastic. 
C) Bobby views soda as a normal good. 
D) the income elasticity of demand for soda is 1.

Question 18

A tax cut will unambiguously lower income-tax revenue.

Accepted Answer

A) True 
 B)False

Question 19

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

Accepted Answer

A) Larry's demand curve for pork shifts rightward when his income increases. 
B) Larry's income elasticity of demand for pork is greater than zero. 
C) Pork is a normal good. 
D) All of the above. 
A) Larry's demand curve for pork shifts rightward when his income increases. 
B) Larry's income elasticity of demand for pork is greater than zero. 
C) Pork is a normal good. 
D) All of the above.

Question 20

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

Suppose the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x changes, then the demand for x is

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.

If a good is considered a normal good, the demand curve will shift when income increases because .

One characteristic of a Giffen good is that it

The price of leisure

-Even though Mary's income is very low, she makes sure that she purchases enough milk for her family to drink. As her income rises, she does buy more milk. Which graph in the above figure best represents Mary's Engel curve for milk?

If a person supplies fewer hours of labor in response to a wage increase, then

If a person supplies more hours of labor in response to a wage increase, then

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

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

A movement upward along an upward sloping Engel curve corresponds to

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?

-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?

A percentage increase in the overall price level is called

Wealthy people will tend to have vertical labor supply curves

-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 an increase in the price of soda. From the graph, one can conclude that

A tax cut will unambiguously lower income-tax revenue.

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

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.

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 the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x changes, then the demand for x is

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.

If a good is considered a normal good, the demand curve will shift ________ when income increases because ________.

One characteristic of a Giffen good is that it

The price of leisure

-Even though Mary's income is very low, she makes sure that she purchases enough milk for her family to drink. As her income rises, she does buy more milk. Which graph in the above figure best represents Mary's Engel curve for milk?

If a person supplies fewer hours of labor in response to a wage increase, then

If a person supplies more hours of labor in response to a wage increase, then

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

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

A movement upward along an upward sloping Engel curve corresponds to

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?

-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?

A percentage increase in the overall price level is called

Wealthy people will tend to have vertical labor supply curves

-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 an increase in the price of soda. From the graph, one can conclude that

A tax cut will unambiguously lower income-tax revenue.

-The above figure shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?

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.

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

If a good is considered a normal good, the demand curve will shift when income increases because .

-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?

-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 an increase in the price of soda. From the graph, one can conclude that