Question 1

What is the difference between the exact measure and the approximate measure of consumer surplus?

Accepted Answer

Each measure of consumer surplus is determined by the area under a demand curve. The exact measure is based on the compensated demand curve. The approximate measure is based on the uncompensated demand curve.

Question 2

A measure of consumer surplus determined by the area under the compensated demand curve is known as the

Accepted Answer

A)  approximate measure of consumer surplus 
B)  exact measure of consumer surplus 
C)  inelastic measure of consumer surplus 
A)  approximate measure of consumer surplus 
B)  exact measure of consumer surplus 
C)  inelastic measure of consumer surplus B

Question 3

A measure of consumer surplus determined by the area under the compensated demand curve is the approximate measure of consumer surplus.

Accepted Answer

A) True 
 B)False  False

Question 4

The paradox of crime prevention is the cost of engaging in any activity or the opportunity forgone by choosing that particular activity.

Accepted Answer

A) True 
 B)False

Question 5

Elastic demand is a characteristic of demand for a good where, at a given price, a 1% change in the price of a good leads to ____________ 1% change in the quantity demanded of that good.

Accepted Answer

A)  a more than 
B)  a less than 
C)  exactly a 
A)  a more than 
B)  a less than 
C)  exactly a

Question 6

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. It costs $190 to achieve a utility level of 10. Then a tax is placed on raspberries so that their price increases from $5 to $10 per ounce. What is the price-compensating variation?

Accepted Answer

A)  $340 
B)  $150 
C)  $260 
A)  $340 
B)  $150 
C)  $260

Question 7

The elasticity of demand measure the percentage change in the price of a good that results from a given percentage change in its demand.

Accepted Answer

A) True 
 B)False

Question 8

A perfectly inelastic demand curve is perfectly vertical, representing zero quantity response to a price change.

Accepted Answer

A) True 
 B)False

Question 9

A characteristic of demand for a good where, at a given price, a 1% change in the price leads to a less than 1% change in the quantity demanded is called inelastic demand.

Accepted Answer

A) True 
 B)False

Question 10

The Slutsky equation portrays

Accepted Answer

A)  only the substitution effect 
B)  only the income effect 
C)  both the income and substitution effects 
A)  only the substitution effect 
B)  only the income effect 
C)  both the income and substitution effects

Question 11

We determine the market demand curve by adding individual demand curves

Accepted Answer

A)  horizontally 
B)  vertically 
C)  multiplicatively 
A)  horizontally 
B)  vertically 
C)  multiplicatively

Question 12

The expenditure function identifies the maximum amount of income that we must give a consumer in order to allow the consumer to achieve a predetermined level of utility at given prices.

Accepted Answer

A) True 
 B)False

Question 13

An explanation for why people view a loss more importantly than a gain is

Accepted Answer

A)  Prospect Theory 
B)  Willingness to Pay 
C)  Convexity of Preferences 
A)  Prospect Theory 
B)  Willingness to Pay 
C)  Convexity of Preferences

Question 14

List the three properties of demand functions.

Accepted Answer

1. Price and income

Question 15

-Refer to Exhibit 5-1. Which demand curve is perfectly elastic?

Accepted Answer

A)  (a) 
B)  (b) 
C)  (c) 
A)  (a) 
B)  (b) 
C)  (c)

Question 16

According to the price and income multiplication property of demand, if we multiply all the prices in an economy and the income of its agents by the same factor, then the demand for any given good will

Accepted Answer

A)  not change 
B)  increase 
C)  decrease 
A)  not change 
B)  increase 
C)  decrease

Question 17

A measure of how much income must be given to a consumer after a price change to leave the consumer at the same level of utility the consumer had attained before the price change occurred is called

Accepted Answer

A)  opportunity cost 
B)  price-compensating variation in income 
C)  the Slutsky equation 
A)  opportunity cost 
B)  price-compensating variation in income 
C)  the Slutsky equation

Question 18

Describe how society can lower the dishonest wage.

Accepted Answer

Society can increase the cost of committ

Question 19

Because they are the only ones we can observe by looking at data on prices and quantities, we are forced to work with

Accepted Answer

A)  uncompensated demand function 
B)  compensated demand functions 
C)  satiated demand functions 
A)  uncompensated demand function 
B)  compensated demand functions 
C)  satiated demand functions

Question 20

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. What is the cost of achieving 20 units of utility?

Accepted Answer

A)  $380 
B)  $19 
C)  $20 
A)  $380 
B)  $19 
C)  $20

Exam 5: Some Applications of Consumer Demand, and Welfare Analysis

What is the difference between the exact measure and the approximate measure of consumer surplus?

A measure of consumer surplus determined by the area under the compensated demand curve is known as the

A measure of consumer surplus determined by the area under the compensated demand curve is the approximate measure of consumer surplus.

The paradox of crime prevention is the cost of engaging in any activity or the opportunity forgone by choosing that particular activity.

Elastic demand is a characteristic of demand for a good where, at a given price, a 1% change in the price of a good leads to ____________ 1% change in the quantity demanded of that good.

The elasticity of demand measure the percentage change in the price of a good that results from a given percentage change in its demand.

A perfectly inelastic demand curve is perfectly vertical, representing zero quantity response to a price change.

A characteristic of demand for a good where, at a given price, a 1% change in the price leads to a less than 1% change in the quantity demanded is called inelastic demand.

The Slutsky equation portrays

We determine the market demand curve by adding individual demand curves

The expenditure function identifies the maximum amount of income that we must give a consumer in order to allow the consumer to achieve a predetermined level of utility at given prices.

An explanation for why people view a loss more importantly than a gain is

List the three properties of demand functions.

-Refer to Exhibit 5-1. Which demand curve is perfectly elastic?

According to the price and income multiplication property of demand, if we multiply all the prices in an economy and the income of its agents by the same factor, then the demand for any given good will

A measure of how much income must be given to a consumer after a price change to leave the consumer at the same level of utility the consumer had attained before the price change occurred is called

Describe how society can lower the dishonest wage.

Because they are the only ones we can observe by looking at data on prices and quantities, we are forced to work with

Economics and Institutions: a Shift of Emphasis

Consumers and Their Preferences

Utilities Indifference Curves

Demand and Behavior in Markets

Uncertainty and the Emergence of Insurance

Uncertainty Applications and Criticisms

The Discovery of Production and Its Technology

Cost and Choice

Cost Curves

Game Theory and the Tools of Strategic Business Analysis

Decision Making Over Time

The Internal Organization of the Firm

Perfectly Competitive Markets: Short-Run Analysis

Competitive Markets in the Long Run

Market Institutions and Auctions

The Age of Entrepreneurship: Monopoly

Natural Monopoly and the Economics of Regulation

The World of Oligopoly: Preliminaries to Successful Entry

Market Entry and the Emergence of Perfect Competition

The Problem of Exchange

General Equilibrium and the Origins of the Free Market and Interventionist Ideologies

Moral Hazard and Adverse Selection: Informational Market Failures

Externalities: the Free Market Interventionist Battle Continues

Public Goods, the Consequences of Strategic Voting Behavior, and the Role of Government

Input Markets and the Origins of Class Conflict

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