Question 1

The Fisher index

Accepted Answer

A) uses the arithmetic mean of the Paasche index and the Laspeyres index. 
B) uses the standard deviation of the Paasche index and the Laspeyres index. 
C) uses the geometric mean of the Paasche index and the Laspeyres index. 
D) uses the harmonic mean of the Paasche index and the Laspeyres index. 
A) uses the arithmetic mean of the Paasche index and the Laspeyres index. 
B) uses the standard deviation of the Paasche index and the Laspeyres index. 
C) uses the geometric mean of the Paasche index and the Laspeyres index. 
D) uses the harmonic mean of the Paasche index and the Laspeyres index.

Question 2

When income increases by 1%, the quantity demanded of a good decreases by 2%. What is the income elasticity of the good? Is the good normal or inferior? Why?

Accepted Answer

The income elasticit

Question 3

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. Bobby's demand for snacks is

Accepted Answer

A) unit elastic. 
B) elastic. 
C) inelastic. 
D) perfectly elastic. 
A) unit elastic. 
B) elastic. 
C) inelastic. 
D) perfectly elastic.

Question 4

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5. Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent. Denote hours worked as H and wage per hour as w.

Accepted Answer

Let t = income tax rate. Since Y = net i

Question 5

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

Accepted Answer

A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) utility maximization is not occurring. 
D) future consumption is a luxury. 
A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) utility maximization is not occurring. 
D) future consumption is a luxury.

Question 6

If Bobby thinks that leisure is an inferior good, then his labor supply curve

Accepted Answer

A) is backward bending. 
B) is always negatively sloped. 
C) is always positively sloped. 
D) does not exist. 
A) is backward bending. 
B) is always negatively sloped. 
C) is always positively sloped. 
D) does not exist.

Question 7

-The above figure shows Bobby's indifference map for juice and snacks. It also shows three budget lines resulting from different prices for snacks. Juice and snacks are

Accepted Answer

A) complement goods. 
B) substitute goods. 
C) unrelated goods. 
D) capital goods. 
A) complement goods. 
B) substitute goods. 
C) unrelated goods. 
D) capital goods.

Question 8

The nominal price of a desk increased from $20 in 2005 to $65 in 2016. The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016. We can say that

Accepted Answer

A) the real price of a desk increased over time. 
B) the real price of a desk fell over time. 
C) the real price of a desk has not changed over time. 
D) There is not enough information to determine the real price of a desk. 
A) the real price of a desk increased over time. 
B) the real price of a desk fell over time. 
C) the real price of a desk has not changed over time. 
D) There is not enough information to determine the real price of a desk.

Question 9

An increase in unearned income always creates a disincentive to work.

Accepted Answer

A) True 
 B)False

Question 10

The Consumer Price Index (CPI)measures inflation for every individual.

Accepted Answer

A) True, the weights used in calculating the CPI are adjusted for every individual in the country. 
B) True, people all face the same prices and therefore face the same inflation. 
C) False, the CPI uses weights based on how much each product represents in the typical household budget. 
D) False, the CPI doesn't measure inflation. 
A) True, the weights used in calculating the CPI are adjusted for every individual in the country. 
B) True, people all face the same prices and therefore face the same inflation. 
C) False, the CPI uses weights based on how much each product represents in the typical household budget. 
D) False, the CPI doesn't measure inflation.

Question 11

As the price of a Giffen good falls, the consumer will

Accepted Answer

A) purchase more units. 
B) purchase fewer units. 
C) not change the amount purchased. 
D) There is not enough information to answer this question. 
A) purchase more units. 
B) purchase fewer units. 
C) not change the amount purchased. 
D) There is not enough information to answer this question.

Question 12

Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s)= 10g0.9s0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

Accepted Answer

A) There will be a shortage of 3 cigarettes. 
B) There will be a surplus of 3 cigarettes. 
C) There will be a shortage of 2/3 cigarettes. 
D) There will be a surplus of 2/3 cigarettes. 
A) There will be a shortage of 3 cigarettes. 
B) There will be a surplus of 3 cigarettes. 
C) There will be a shortage of 2/3 cigarettes. 
D) There will be a surplus of 2/3 cigarettes.

Question 13

An individual derives utility from consuming "all other goods," g, and clean air (measured by the reduction in particulate matter per m3), a, as measured by the utility function U(g,a)= g0.6a0.4. The price of consumer goods equals $20 and the price of clean air (abatement)equals $10. What is the slope of the Engel curve when income increases from $100 to $200?

Accepted Answer

A) The slope is 25. 
B) The slope is -25. 
C) The slope is zero. 
D) The slope is infinite. 
A) The slope is 25. 
B) The slope is -25. 
C) The slope is zero. 
D) The slope is infinite.

Question 14

-The above figure shows a consumer's indifference curves for soda and all other goods. Assuming a budget of $100, derive the consumer's demand for soda for prices of $4 and $10 per case of soda. Estimate the price elasticity of demand for soda.

Accepted Answer

At a price of $4, 15 cases are

Question 15

Recent data has shown that income and volunteer time are positively related. Assuming that volunteer time is included in leisure time, what could explain this observation?

Accepted Answer

A) Higher income individuals view leisure as a normal good such that the income effect dominates the substitution effect. 
B) Higher income individuals view leisure as a normal good such that the substitution effect dominates the income effect. 
C) Higher income individuals view leisure as an inferior good such that the income and substitution effects both increase leisure time. 
D) Both A and C. 
A) Higher income individuals view leisure as a normal good such that the income effect dominates the substitution effect. 
B) Higher income individuals view leisure as a normal good such that the substitution effect dominates the income effect. 
C) Higher income individuals view leisure as an inferior good such that the income and substitution effects both increase leisure time. 
D) Both A and C.

Question 16

Under which of the following conditions will there be no substitution bias in the CPI?

Accepted Answer

A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods. 
B) Higher-price goods increase in price by a greater percentage than do lower-priced goods. 
C) All goods change in price by the same amount. 
D) All goods change in price by the same percentage. 
A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods. 
B) Higher-price goods increase in price by a greater percentage than do lower-priced goods. 
C) All goods change in price by the same amount. 
D) All goods change in price by the same percentage.

Question 17

Newspaper accounts of the U.S. labor market often point out that many people are working more hours than their parents did. What might explain this phenomenon?

Accepted Answer

A) the substitution effect 
B) the endowment effect 
C) bounded rationality 
D) the income effect 
A) the substitution effect 
B) the endowment effect 
C) bounded rationality 
D) the income effect

Question 18

A good may be inferior at some income levels and normal at others.

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 Engel curve for pork will be upward sloping. 
B) Larry's Engel curve for pork will be downward sloping. 
C) Larry's Engel curve for pork will be backward bending. 
D) Larry's Engel curve for pork cannot be derived from the information provided. 
A) Larry's Engel curve for pork will be upward sloping. 
B) Larry's Engel curve for pork will be downward sloping. 
C) Larry's Engel curve for pork will be backward bending. 
D) Larry's Engel curve for pork cannot be derived from the information provided.

Question 20

Suppose the typical consumer only purchases food and clothing, and her utility can be expressed as   . Currently, food costs $5 per unit and clothing costs $2 per unit. Her income is $70. If the price of food increases to $6, compare the resulting Laspeyres price index with a true cost of living index.

Accepted Answer

Maximizing utility subject to the initia

The Fisher index

When income increases by 1%, the quantity demanded of a good decreases by 2%. What is the income elasticity of the good? Is the good normal or inferior? Why?

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. Bobby's demand for snacks is

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5. Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent. Denote hours worked as H and wage per hour as w.

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

If Bobby thinks that leisure is an inferior good, then his labor supply curve

-The above figure shows Bobby's indifference map for juice and snacks. It also shows three budget lines resulting from different prices for snacks. Juice and snacks are

The nominal price of a desk increased from $20 in 2005 to $65 in 2016. The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016. We can say that

An increase in unearned income always creates a disincentive to work.

The Consumer Price Index (CPI)measures inflation for every individual.

As the price of a Giffen good falls, the consumer will

Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s)= 10g^0.9s^0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-The above figure shows a consumer's indifference curves for soda and all other goods. Assuming a budget of $100, derive the consumer's demand for soda for prices of $4 and $10 per case of soda. Estimate the price elasticity of demand for soda.

Recent data has shown that income and volunteer time are positively related. Assuming that volunteer time is included in leisure time, what could explain this observation?

Under which of the following conditions will there be no substitution bias in the CPI?

Newspaper accounts of the U.S. labor market often point out that many people are working more hours than their parents did. What might explain this phenomenon?

A good may be inferior at some income levels and normal at others.

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

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

The Fisher index

When income increases by 1%, the quantity demanded of a good decreases by 2%. What is the income elasticity of the good? Is the good normal or inferior? Why?

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. Bobby's demand for snacks is

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5. Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent. Denote hours worked as H and wage per hour as w.

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

If Bobby thinks that leisure is an inferior good, then his labor supply curve

-The above figure shows Bobby's indifference map for juice and snacks. It also shows three budget lines resulting from different prices for snacks. Juice and snacks are

The nominal price of a desk increased from $20 in 2005 to $65 in 2016. The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016. We can say that

An increase in unearned income always creates a disincentive to work.

The Consumer Price Index (CPI)measures inflation for every individual.

As the price of a Giffen good falls, the consumer will

Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s)= 10g0.9s0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-The above figure shows a consumer's indifference curves for soda and all other goods. Assuming a budget of $100, derive the consumer's demand for soda for prices of $4 and $10 per case of soda. Estimate the price elasticity of demand for soda.

Recent data has shown that income and volunteer time are positively related. Assuming that volunteer time is included in leisure time, what could explain this observation?

Under which of the following conditions will there be no substitution bias in the CPI?

Newspaper accounts of the U.S. labor market often point out that many people are working more hours than their parents did. What might explain this phenomenon?

A good may be inferior at some income levels and normal at others.

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

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

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5. Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent. Denote hours worked as H and wage per hour as w.

Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s)= 10g^0.9s^0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?