Exam 5: The Theory of Demand

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

Suppose the consumer's utility function is given by $U ( x , y ) = \sqrt { x y }$ where $M U _ { x } = \frac { \sqrt { y } } { 2 \sqrt { x } } \quad M U _ { y } = \frac { \sqrt { x } } { 2 \sqrt { y } }$ The equation for this consumer's demand curve for $x$ is:

Which of the following is held constant along an income-consumption curve?

Assume that the price of good $x$ increases. If x is a normal good, both the income and substitution effects lead to a fall in consumption of x.

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

Suppose that a consumer's demand curve for a good can be expressed as $P = 50 - 4 Q ^ { d }$ . Suppose that the market is initially in equilibrium at a price of $10. Now suppose that the price rises to $14. What is the change in consumer surplus?

A negatively-sloped Engel curve implies a(n):

The method for finding the substitution effect of a price change on consumption of good x is to:

If a consumer's preferences for two goods, say food and clothing, are such that as income decreases, consumption of food increases but consumption of clothing decreases, we can say that:

The income effect is:

The income elasticity of demand for a normal good is negative.

A negatively-sloped Engel curve implies a marginal good.

The income effect associated with a change in the price of good x:

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