Question 1

Giffen goods:

Accepted Answer

A) are normal goods with a negative income effect. 
B) are inferior goods with an income effect that is smaller in magnitude than the substitution effect. 
C) are inferior goods with an income effect that is greater in magnitude than the substitution effect. 
D) have downward sloping demand curves. 
A) are normal goods with a negative income effect. 
B) are inferior goods with an income effect that is smaller in magnitude than the substitution effect. 
C) are inferior goods with an income effect that is greater in magnitude than the substitution effect. 
D) have downward sloping demand curves.

Question 2

The market demand curve maintains the properties of the individual demand curves.

Accepted Answer

A) True 
 B)False

Question 3

The Engel curve for a normal good is upward-sloping.

Accepted Answer

A) True 
 B)False

Question 4

All Giffen good are inferior goods.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the consumer's income elasticity for good $x$ is -0.10 when monthly income is $1,000, and the consumer's income elasticity for good $x$ is 0.10 when monthly income is $2,000. From this information we can infer that good $x$ is an inferior good for low levels of income and a superior good for high levels of income.

Accepted Answer

A) True 
 B)False

Question 6

Compensating variation is:

Accepted Answer

A) the change in income necessary to hold the consumer at the final level of utility as price changes. 
B) always the area under the demand curve and above the price paid. 
C) the change in income necessary to restore the consumer to the initial level of utility. 
D) the difference in the consumer's income between the purchase of the original basket and the new basket at the old prices. 
A) the change in income necessary to hold the consumer at the final level of utility as price changes. 
B) always the area under the demand curve and above the price paid. 
C) the change in income necessary to restore the consumer to the initial level of utility. 
D) the difference in the consumer's income between the purchase of the original basket and the new basket at the old prices.

Question 7

Suppose the consumer's income elasticity for good $x$ is -0.10 when monthly income is $1,000, and the consumer's income elasticity for good $x$ is 0.10 when monthly income is $2,000. From this information we can infer that good $x$ in an inferior good for low levels of income and a normal good for high levels of income.

Accepted Answer

A) True 
 B)False

Question 8

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called:

Accepted Answer

A) income elasticity of demand and it is negative when the good is a normal good. 
B) income elasticity of demand and it is negative when the good is an inferior good. 
C) price elasticity of demand and it is negative when the slope of the demand curve is negatively sloped. 
D) None of the above. 
A) income elasticity of demand and it is negative when the good is a normal good. 
B) income elasticity of demand and it is negative when the good is an inferior good. 
C) price elasticity of demand and it is negative when the slope of the demand curve is negatively sloped. 
D) None of the above.

Question 9

The Engel curve for an inferior good is downward-sloping.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

The "substitution bias" of the CPI means that the CPI can either understate or overstate the actual change in cost of living faced by consumers.

Accepted Answer

A) True 
 B)False

Question 12

We could use the term "bandwagon 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

Some normal goods are Giffen goods.

Accepted Answer

A) True 
 B)False

Question 14

As the price of a normal good falls, the income effect will result in an increase in consumption of the good.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the price of good $x$ increases. The overall effect shows that the consumer purchases more of good $x$ if good $x$ is a Giffen good.

Accepted Answer

A) True 
 B)False

Question 16

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that the consumer's income elasticity for good $x$ is:

Accepted Answer

A)  $- 1$ 
B)  $- 0.01$ 
C)  1 
D)  $0.01$ 
A)  $- 1$ 
B)  $- 0.01$ 
C)  1 
D)  $0.01$

Question 17

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n):

Accepted Answer

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

Question 18

A negatively-sloped Engel curve implies a normal good.

Accepted Answer

A) True 
 B)False

Question 19

Assume that the price of good $x$ increases. The income effect shows that the consumption of good $x$ rises if good $x$ is an inferior good.

Accepted Answer

A) True 
 B)False

Question 20

For normal goods, the income and substitution effects work in the same direction.

Accepted Answer

A) True 
 B)False

Giffen goods:

The market demand curve maintains the properties of the individual demand curves.

The Engel curve for a normal good is upward-sloping.

All Giffen good are inferior goods.

Compensating variation is:

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called:

The Engel curve for an inferior good is downward-sloping.

The "substitution bias" of the CPI means that the CPI can either understate or overstate the actual change in cost of living faced by consumers.

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

Some normal goods are Giffen goods.

As the price of a normal good falls, the income effect will result in an increase in consumption of the good.

Assume that the price of good $x$ increases. The overall effect shows that the consumer purchases more of good $x$ if good $x$ is a Giffen good.

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that the consumer's income elasticity for good $x$ is:

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n):

A negatively-sloped Engel curve implies a normal good.

Assume that the price of good $x$ increases. The income effect shows that the consumption of good $x$ rises if good $x$ is an inferior good.

For normal goods, the income and substitution effects work in the same direction.

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

Giffen goods:

The market demand curve maintains the properties of the individual demand curves.

The Engel curve for a normal good is upward-sloping.

All Giffen good are inferior goods.

Compensating variation is:

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called:

The Engel curve for an inferior good is downward-sloping.

The "substitution bias" of the CPI means that the CPI can either understate or overstate the actual change in cost of living faced by consumers.

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

Some normal goods are Giffen goods.

As the price of a normal good falls, the income effect will result in an increase in consumption of the good.

Assume that the price of good xxx increases. The overall effect shows that the consumer purchases more of good xxx if good xxx is a Giffen good.

Suppose when the consumer's income rises by 100%, the consumer's consumption of good xxx falls by 1%. We can infer that the consumer's income elasticity for good xxx is:

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n):

A negatively-sloped Engel curve implies a normal good.

Assume that the price of good xxx increases. The income effect shows that the consumption of good xxx rises if good xxx is an inferior good.

For normal goods, the income and substitution effects work in the same direction.

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. The overall effect shows that the consumer purchases more of good $x$ if good $x$ is a Giffen good.

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that the consumer's income elasticity for good $x$ is:

Assume that the price of good $x$ increases. The income effect shows that the consumption of good $x$ rises if good $x$ is an inferior good.