Exam 5: Applying Consumer Theory

Employing a fixed-weight index like the Consumer Price Index to adjust a person's salary in response to inflation will overcompensate this person because doing so will allow this person to

The real wage in Fantasyland has been constant since 1950. The nominal wage in 2015 was $100, and the Consumer Price Index (CPI)was 200 in 2015. What was the nominal wage in 2002 if the CPI was 50 in 2002?

If the Engel curve for a good is upward sloping, the demand curve for that good must be downward sloping.

A Giffen good has

When John was in college and his income was low, he drank "Red Ribbon" beer. As his income increased, he purchased better-quality beer and less "Red Ribbon." Which graph in the above figure best represents John's Engel curve for "Red Ribbon" beer?

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks rises, the price for juice

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. This information could be used to determine

Consider two lottery winners, Tino who is 65 years old and Sasha who is 32 years old. Which of these two would be expected to have the larger income effect, all else equal?

The Slutsky equation shows that, holding the total effect constant, the income effect will be larger for goods that

If workers are in the backward-bending section of their labor supply curves, than an increase in the income tax rate will

The substitution effect can be measured holding ________ constant.

Before an uneven rise in prices Allan consumed 5 bread and 6 juice. After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice. Does the government payment represent a true cost-of-living adjustment (COLA)?

Suppose that the interest rate paid to savers increases. As a result, Tom wishes to save more. This suggests that, for Tom,

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 price-consumption curve?

Ten individuals have $100 and identical preferences for picnics, p, and kayak trips, k, where U(p, k)= k^0.5p^0.5. The price of picnics is $5 and the price per kayak trip is $ 10. What is the shortage/surplus in the market when the supply of picnics totals 120?

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

What might explain a professional baseball player having lower production the year after signing a multimillion dollar contract?

The belief that a cut in the income tax rate must raise government income tax revenue has the implicit assumption that

A true cost-of-living adjustment (COLA)in response to a change in prices would compensate consumers so that they would be able to

Many manufacturers sell products labeled as having imperfections at a discount at their factory outlets but do not ship these imperfect goods to regular retail outlets. Why?