Exam 5: Applying Consumer Theory

Richard receives government transfer payments and currently consumes 5 guns and 6 goose livers.Assume the price of guns decreases by 10% and the price of goose liver increases by 20%.The government raises Richard's transfer payments so he can still afford 5 guns and 6 goose livers.Does this constitute a true cost-of-living adjustment (COLA)?

Due to inflation,nominal prices are usually

What is the benefit of understanding the income and the substitution effects?

Deriving Demand Curves -The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.Bobby's demand for snacks is

Why would you expect the demand for diamond jewelry to fall faster than plastic,costume jewelry when all incomes fall?

A true cost-of-living adjustment (COLA)in response to a change in prices would compensate consumers so that they would be able to

-The above figure shows Larry's indifference map and budget lines for ham and pork.Which of the following statements is TRUE?

As the price of a good rises,the consumer will experience

If workers are in the backward-bending section of their labor supply curves,than an increase in the income tax rate will

-The above figure shows Larry's indifference map and budget lines for ham and pork.Which of the following statements is TRUE?

Under which of the following conditions will there be no substitution bias in the CPI?

In response to an increase in the wage rate,the income effect will usually cause a person to

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

Draw two graphs,one directly above the other.On the upper graph,label the vertical axis Good X and label the horizontal axis Good Y.On the lower graph,label the vertical axis the Price of good Y and label the horizontal axis Good Y.In the upper graph,show the income and substitution effects of a decrease in the Price of good Y when Y is a Giffen good.Draw the corresponding demand curve for Good Y in the lower graph.

Deriving Demand Curves -The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods.Which of the following points are on Bobby's demand curve for snacks?

Wealthy people will tend to have vertical labor supply curves

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

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

Suppose a graph is drawn to show a consumer's preferences for football tickets and basketball tickets.The quantity of football tickets is measured on the horizontal axis.If the price-consumption curve is horizontal when the price of football tickets changes,then

Deriving Demand Curves -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