Question 1

Draw budget constraints, indifference curves, and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

Accepted Answer

@#IMG-DLM& See the a

Question 2

-In the above figure point A is the original consumption point. The movement from point A to point C is due to a fall in the price of good Y. Note that B1, B2, and B3 are budget constraint lines with incomes M1, M2, and M3 respectively. Also note that B2 and B3 are parallel. Calculate the compensating variation (CV).

Accepted Answer

A) CV = M3 - M1. 
B) CV = M3 - M2. 
C) CV = M1 - M2. 
D) CV = M1 - M3. 
A) CV = M3 - M1. 
B) CV = M3 - M2. 
C) CV = M1 - M2. 
D) CV = M1 - M3.

Question 3

What is the slope of the price consumption curve for two goods, x and y, when preferences are measured by the utility function U(x,y)= x0.5y0.5, the price of good y is $10, income equals $100, and the price of good x increases from $5 to $10?

Accepted Answer

A) Slope equals zero. 
B) Slope is infinite. 
C) Slope is -   . 
D) Slope is   . 
A) Slope equals zero. 
B) Slope is infinite. 
C) Slope is -   . 
D) Slope is   .

Question 4

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, Bobby's utility

Accepted Answer

A) stays the same. 
B) increases. 
C) decreases. 
D) might change, but there is not enough information to determine. 
A) stays the same. 
B) increases. 
C) decreases. 
D) might change, but there is not enough information to determine.

Question 5

When deriving an Engel curve, the prices of both goods

Accepted Answer

A) are held constant. 
B) increase by the same percentage as income. 
C) decrease by the same percentage as income. 
D) can either decrease, increase or stay the same. 
A) are held constant. 
B) increase by the same percentage as income. 
C) decrease by the same percentage as income. 
D) can either decrease, increase or stay the same.

Question 6

Using a Laspeyres 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.

Question 7

What is the primary difference between the substitution and the income effect of a price change?

Accepted Answer

A) The substitution effect holds income constant and the income effect holds utility constant. 
B) The substitution effect is always positive and the income effect is always negative. 
C) The substitution effect holds utility constant and the income effect holds prices constant. 
D) The substitution effect is always negative and the income effect is always positive. 
A) The substitution effect holds income constant and the income effect holds utility constant. 
B) The substitution effect is always positive and the income effect is always negative. 
C) The substitution effect holds utility constant and the income effect holds prices constant. 
D) The substitution effect is always negative and the income effect is always positive.

Question 8

Sandy derives utility from consuming "all other goods," g, and clean air (measured by particulate matter removed per m3), a, as measured by the utility function U(g,a)= g0.6a0.4. The price of "all other goods" is $20 and the price of clean air (abatement)equals $10. Brian is the only other consumer in the market for clean air and demands 10 units of clean air. What is the market demand for clean air?

Accepted Answer

A) Total market demand is 14 units of clean air. 
B) Total market demand is 12 units of clean air. 
C) Total market demand is 10 units of clean air. 
D) Total market demand is 16 units of clean air. 
A) Total market demand is 14 units of clean air. 
B) Total market demand is 12 units of clean air. 
C) Total market demand is 10 units of clean air. 
D) Total market demand is 16 units of clean air.

Question 9

-The above figure shows three different Engel curves. Rank them in terms of income elasticity.

Accepted Answer

Engel curve A implies that a certain lev

Question 10

When measuring the substitution effect, one uses the change along

Accepted Answer

A) the old indifference curve. 
B) the new indifference curve. 
C) either the old or the new indifference curve. 
D) the budget constraint. 
A) the old indifference curve. 
B) the new indifference curve. 
C) either the old or the new indifference curve. 
D) the budget constraint.

Question 11

After Joyce and Larry purchased their first house, they made additional home improvements in response to increases in income. After a while, their income rose so much that they could afford a larger home. Once they realized they would be moving, they reduced the amount of home improvements. Their Engel curve for home improvements on their current home is

Accepted Answer

A) negatively sloped. 
B) flat. 
C) positively sloped. 
D) backward bending. 
A) negatively sloped. 
B) flat. 
C) positively sloped. 
D) backward bending.

Question 12

The Affordable Care Act is intended to reduce the price of health care. A decrease in the price of health care may

Accepted Answer

A) increase the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect. 
B) decrease the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect. 
C) increase the number of doctors office visits if office visits are a normal good. 
D) Both A and C. 
A) increase the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect. 
B) decrease the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect. 
C) increase the number of doctors office visits if office visits are a normal good. 
D) Both A and C.

Question 13

Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is

Accepted Answer

A) 0. 
B) 1. 
C) -1. 
D) There is not enough information to determine the income elasticity of demand for x. 
A) 0. 
B) 1. 
C) -1. 
D) There is not enough information to determine the income elasticity of demand for x.

Question 14

Why can't all goods be inferior?

Accepted Answer

If all goods were inferior, an increase

Question 15

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5. Assuming a wage rate of $10 per hour, show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

Accepted Answer

Rearranging yields U = (Y^* + 10H)+ (24 -

Question 16

An individual's demand curve for a good can be derived by measuring the quantities selected as

Accepted Answer

A) the price of the good changes. 
B) the price of substitute goods changes. 
C) income changes. 
D) All of the above. 
A) the price of the good changes. 
B) the price of substitute goods changes. 
C) income changes. 
D) All of the above.

Question 17

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

Accepted Answer

A) tax rates were low already. 
B) the relevant portion of the labor supply curve is upward sloping. 
C) the relevant portion of the labor supply curve is downward sloping. 
D) workers can be easily fooled. 
A) tax rates were low already. 
B) the relevant portion of the labor supply curve is upward sloping. 
C) the relevant portion of the labor supply curve is downward sloping. 
D) workers can be easily fooled.

Question 18

An inferior good exhibits

Accepted Answer

A) a negative income elasticity. 
B) a downward sloping Engel curve. 
C) a decline in the quantity demanded as income rises. 
D) All of the above. 
A) a negative income elasticity. 
B) a downward sloping Engel curve. 
C) a decline in the quantity demanded as income rises. 
D) All of the above.

Draw budget constraints, indifference curves, and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

What is the slope of the price consumption curve for two goods, x and y, when preferences are measured by the utility function U(x,y)= x^0.5y^0.5, the price of good y is $10, income equals $100, and the price of good x increases from $5 to $10?

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, Bobby's utility

When deriving an Engel curve, the prices of both goods

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

What is the primary difference between the substitution and the income effect of a price change?

-The above figure shows three different Engel curves. Rank them in terms of income elasticity.

When measuring the substitution effect, one uses the change along

The Affordable Care Act is intended to reduce the price of health care. A decrease in the price of health care may

Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is

Why can't all goods be inferior?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5. Assuming a wage rate of $10 per hour, show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

An individual's demand curve for a good can be derived by measuring the quantities selected as

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

An inferior good exhibits

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

Draw budget constraints, indifference curves, and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

What is the slope of the price consumption curve for two goods, x and y, when preferences are measured by the utility function U(x,y)= x0.5y0.5, the price of good y is $10, income equals $100, and the price of good x increases from $5 to $10?

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, Bobby's utility

When deriving an Engel curve, the prices of both goods

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

What is the primary difference between the substitution and the income effect of a price change?

-The above figure shows three different Engel curves. Rank them in terms of income elasticity.

When measuring the substitution effect, one uses the change along

The Affordable Care Act is intended to reduce the price of health care. A decrease in the price of health care may

Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is

Why can't all goods be inferior?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5. Assuming a wage rate of $10 per hour, show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

An individual's demand curve for a good can be derived by measuring the quantities selected as

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

An inferior good exhibits

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

What is the slope of the price consumption curve for two goods, x and y, when preferences are measured by the utility function U(x,y)= x^0.5y^0.5, the price of good y is $10, income equals $100, and the price of good x increases from $5 to $10?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5. Assuming a wage rate of $10 per hour, show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.