Question 1

The substitution effect is unambiguous in its direction.

Accepted Answer

A) True 
 B)False  True

Question 2

A negatively-sloped Engel curve implies an inferior good.

Accepted Answer

A) True 
 B)False  True

Question 3

As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good.

Accepted Answer

A) True 
 B)False  False

Question 4

In this chapter, the term positive network externality describes:

Accepted Answer

A) the positive effect of consuming chocolate as income rises. 
B) the snob effect. 
C) the bandwagon effect. 
D) the impact of a polluting firm on its local environment. 
A) the positive effect of consuming chocolate as income rises. 
B) the snob effect. 
C) the bandwagon effect. 
D) the impact of a polluting firm on its local environment.

Question 5

Assume that the price of good $x$ increases. If x is a normal good, the substitution effect alone leads to a decrease in consumption of x.

Accepted Answer

A) True 
 B)False

Question 6

It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region.

Accepted Answer

A) True 
 B)False

Question 7

The "substitution bias" of the CPI refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements describes a backward-bending labor supply curve?

Accepted Answer

A) Every hour that I work represents a loss of an hour of leisure. 
B) I asked for extra hours this month to pay for a new bicycle. 
C) When I received my last raise, I cut back on my overtime hours so that I could work fewer hours but earn the same amount of money per week. 
D) I worked more hours when I was younger. 
A) Every hour that I work represents a loss of an hour of leisure. 
B) I asked for extra hours this month to pay for a new bicycle. 
C) When I received my last raise, I cut back on my overtime hours so that I could work fewer hours but earn the same amount of money per week. 
D) I worked more hours when I was younger.

Question 9

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's:

Accepted Answer

A) income-consumption curve. 
B) price-consumption curve. 
C) demand curve. 
D) Engel curve. 
A) income-consumption curve. 
B) price-consumption curve. 
C) demand curve. 
D) Engel curve.

Question 10

An Engel curve for good $x$ describes:

Accepted Answer

A) how the consumption of good $x$ varies as the price of good
$x$ changes. 
B) how the consumption of good $x$ varies as the consumer's income changes. 
C) how the consumption of good $x$ varies as the consumption of good
$y$ changes. 
D) how the consumption of good $x$ varies as price-consumption curve changes. 
A) how the consumption of good $x$ varies as the price of good
$x$ changes. 
B) how the consumption of good $x$ varies as the consumer's income changes. 
C) how the consumption of good $x$ varies as the consumption of good
$y$ changes. 
D) how the consumption of good $x$ varies as price-consumption curve changes.

Question 11

Suppose the consumer's utility function is given by $\mathrm { U } ( \mathrm { x } , \mathrm { y } ) = \mathrm { xy } + \mathrm { y }$ where $\mathrm { MU } _ { \mathrm { x } } = \mathrm { y } \quad \mathrm { MU } _ { \mathrm { y } } = \mathrm { x } + 1$
The equation for this consumer's demand curve for $x$ when $\mathrm { I } < \mathrm { P } _ { \mathrm { x } }$ is:

Accepted Answer

A)  $x ^ { d } = 0$ 
B)  $\mathrm { x } ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { x } }$ 
C)  $x ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { x } } - \frac { 1 } { 2 }$ 
D)  $x ^ { d } = 1 / 2$ 
A)  $x ^ { d } = 0$ 
B)  $\mathrm { x } ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { x } }$ 
C)  $x ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { x } } - \frac { 1 } { 2 }$ 
D)  $x ^ { d } = 1 / 2$

Question 12

We could use the term "snob effect" to describe which of the following situations?

Accepted Answer

A) I get great satisfaction from collecting Soviet-era posters because few people have them. 
B) I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information. 
C) I purchase more chocolate bars when the price of chocolate bars falls. 
D) I decide to purchase a good because a politician suggests it. 
A) I get great satisfaction from collecting Soviet-era posters because few people have them. 
B) I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information. 
C) I purchase more chocolate bars when the price of chocolate bars falls. 
D) I decide to purchase a good because a politician suggests it.

Question 13

The direction of the income effect depends on whether the good is a normal or an inferior good.

Accepted Answer

A) True 
 B)False

Question 14

The concept of compensating variation means:

Accepted Answer

A) the change in income necessary to hold the consumer at the final level of utility as price changes. 
B) the change in income necessary to restore the consumer to the initial level of utility as price changes. 
C) the income effect. 
D) the substitution effect. 
A) the change in income necessary to hold the consumer at the final level of utility as price changes. 
B) the change in income necessary to restore the consumer to the initial level of utility as price changes. 
C) the income effect. 
D) the substitution effect.

Question 15

Identify which of the following statements is false.

Accepted Answer

A) The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically. 
B) The market demand curve is the horizontal sum of the individual demands for each price. 
C) The market demand curve maintains the properties of the individual demand curves. 
D) All of the above statements are true. 
A) The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically. 
B) The market demand curve is the horizontal sum of the individual demands for each price. 
C) The market demand curve maintains the properties of the individual demand curves. 
D) All of the above statements are true.

Question 16

Identify which of the following statements is false. The "substitution bias" of the CPI:

Accepted Answer

A) means that the CPI can either understate or overstate the actual change in cost of living faced by consumers. 
B) refers to the fact that the CPI measures the change in expenditures necessary to consume a fixed basket of goods, whereas in reality the optimal consumption basket changes as prices change. 
C) can be corrected partially by periodically updating the fixed basket of goods used in calculations. 
D) refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations. 
A) means that the CPI can either understate or overstate the actual change in cost of living faced by consumers. 
B) refers to the fact that the CPI measures the change in expenditures necessary to consume a fixed basket of goods, whereas in reality the optimal consumption basket changes as prices change. 
C) can be corrected partially by periodically updating the fixed basket of goods used in calculations. 
D) refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Question 17

We can derive a market demand curve for an item by:

Accepted Answer

A) multiplying each individual's demand curve by the number of consumers in the marketplace. 
B) summing all of the quantities that would be demanded by individual consumers at different prices for that good and plotting the total quantities against price. 
C) looking at how the equilibrium changes when we shift each individual's supply curve. 
D) subtracting the price of an item from the supply curve. 
A) multiplying each individual's demand curve by the number of consumers in the marketplace. 
B) summing all of the quantities that would be demanded by individual consumers at different prices for that good and plotting the total quantities against price. 
C) looking at how the equilibrium changes when we shift each individual's supply curve. 
D) subtracting the price of an item from the supply curve.

Question 18

Suppose the consumer's utility function is given by $U ( x , y ) = x y + y$ where $\mathrm { MU } _ { \mathrm { x } } = \mathrm { y } \quad \mathrm { MU } _ { \mathrm { y } } = \mathrm { x } + 1$
The equation for this consumer's demand curve for $\mathrm { y }$ when $\mathrm { I } < \mathrm { P } _ { \mathrm { x } }$ is:

Accepted Answer

A)  $y ^ { d } = 0$ 
B)  $\mathrm { y } ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { y } }$ 
C)  $\mathrm { y } ^ { \mathrm { d } } = \frac { I } { P _ { y } }$ 
D)  $y ^ { d } = 1 / 2$ 
A)  $y ^ { d } = 0$ 
B)  $\mathrm { y } ^ { \mathrm { d } } = \frac { 1 } { 2 P _ { y } }$ 
C)  $\mathrm { y } ^ { \mathrm { d } } = \frac { I } { P _ { y } }$ 
D)  $y ^ { d } = 1 / 2$

Question 19

The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically.

Accepted Answer

A) True 
 B)False

Question 20

One way to measure the opportunity cost of an hour of leisure is:

Accepted Answer

A) the wage rate that an individual could earn for that hour. 
B) the cost of going to a restaurant every evening to eat. 
C) the cost of visiting a museum just for fun. 
D) the cost of the cleaning service that I hire to clean my house because I work 50 hours per week. 
A) the wage rate that an individual could earn for that hour. 
B) the cost of going to a restaurant every evening to eat. 
C) the cost of visiting a museum just for fun. 
D) the cost of the cleaning service that I hire to clean my house because I work 50 hours per week.

The substitution effect is unambiguous in its direction.

A negatively-sloped Engel curve implies an inferior good.

As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good.

In this chapter, the term positive network externality describes:

Assume that the price of good $x$ increases. If x is a normal good, the substitution effect alone leads to a decrease in consumption of x.

It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region.

The "substitution bias" of the CPI refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Which of the following statements describes a backward-bending labor supply curve?

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's:

An Engel curve for good $x$ describes:

We could use the term "snob effect" to describe which of the following situations?

The direction of the income effect depends on whether the good is a normal or an inferior good.

The concept of compensating variation means:

Identify which of the following statements is false.

Identify which of the following statements is false. The "substitution bias" of the CPI:

We can derive a market demand curve for an item by:

The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically.

One way to measure the opportunity cost of an hour of leisure is:

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 5: The Theory of Demand

The substitution effect is unambiguous in its direction.

A negatively-sloped Engel curve implies an inferior good.

As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good.

In this chapter, the term positive network externality describes:

Assume that the price of good xxx increases. If x is a normal good, the substitution effect alone leads to a decrease in consumption of x.

It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region.

The "substitution bias" of the CPI refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Which of the following statements describes a backward-bending labor supply curve?

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's:

An Engel curve for good xxx describes:

We could use the term "snob effect" to describe which of the following situations?

The direction of the income effect depends on whether the good is a normal or an inferior good.

The concept of compensating variation means:

Identify which of the following statements is false.

Identify which of the following statements is false. The "substitution bias" of the CPI:

We can derive a market demand curve for an item by:

The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically.

One way to measure the opportunity cost of an hour of leisure is:

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Assume that the price of good $x$ increases. If x is a normal good, the substitution effect alone leads to a decrease in consumption of x.

An Engel curve for good $x$ describes: