Question 1

If the Engel curve for a good is upward sloping,the demand curve for that good must be downward sloping.

Accepted Answer

A) True 
 B)False

Question 2

Draw a graph with Goods Per Day on the vertical axis and Leisure Hours Per Day increasing from left to right on the horizontal axis.Show that a person who works can work fewer hours and increase utility when the wage rate increases.

Accepted Answer

@#IMG-DLM& See the a

Question 3

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

Accepted Answer

A)  3 
B)  10 
C)  15 
D)  7 
A)  3 
B)  10 
C)  15 
D)  7

Question 4

The Consumer Price Index (CPI)measures inflation for every individual.

Accepted Answer

A)  True, the weights used in calculating the CPI are adjusted for every individual in the country. 
B)  True, people all face the same prices and therefore face the same inflation. 
C)  False, the CPI uses weights based on how much each product represents in the typical household budget. 
D)  False, the CPI doesn't measure inflation. 
A)  True, the weights used in calculating the CPI are adjusted for every individual in the country. 
B)  True, people all face the same prices and therefore face the same inflation. 
C)  False, the CPI uses weights based on how much each product represents in the typical household budget. 
D)  False, the CPI doesn't measure inflation.

Question 5

Inflation over time necessarily makes consumers worse off.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury.

Question 7

Ten individuals have $100 and identical preferences for picnics,p,and kayak trips,k,where U(p,k)= k0.5p0.5.The price of picnics is $5 and the price per kayak trip is $ 10.What is the shortage/surplus in the market when the supply of picnics totals 120?

Accepted Answer

A)  There is a surplus of 20. 
B)  There is a shortage of 20. 
C)  The market is in equilibrium. Therefore, there is no surplus/shortage. 
D)  There is not enough information to answer this question. 
A)  There is a surplus of 20. 
B)  There is a shortage of 20. 
C)  The market is in equilibrium. Therefore, there is no surplus/shortage. 
D)  There is not enough information to answer this question.

Question 8

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

Accepted Answer

A positive slope of the income consumpti

Question 9

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D 
A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 10

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,the price for juice

Accepted Answer

A)  stays the same. 
B)  increases. 
C)  decreases 
D)  might change, but there is not enough information to determine. 
A)  stays the same. 
B)  increases. 
C)  decreases 
D)  might change, but there is not enough information to determine.

Question 11

If a person supplies fewer hours of labor in response to a wage increase,then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility.

Question 12

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

Accepted Answer

A)  the income effect when relative prices change. 
B)  the substitution effect when relative prices change. 
C)  that some goods are inferior. 
D)  that the substitution effect may offset the income effect. 
A)  the income effect when relative prices change. 
B)  the substitution effect when relative prices change. 
C)  that some goods are inferior. 
D)  that the substitution effect may offset the income effect.

Question 13

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

Accepted Answer

A) True 
 B)False

Question 14

If a person supplies more hours of labor in response to a wage increase,then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect equals the substitution effect. 
D)  the person is not maximizing utility.

Question 15

Empirical studies have found that the labor supply curves for most parts of the population are

Accepted Answer

A)  backward-bending. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  nearly vertical. 
A)  backward-bending. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  nearly vertical.

Question 16

What is one way to adjust the CPI for substitution bias?

Accepted Answer

A)  Use the Paasche index. 
B)  Use the Laspeyres index. 
C)  Multiply the Paasche Index and the Laspeyres index. 
D)  Take the geometric mean of the Paasche index and the Laspeyres index. 
A)  Use the Paasche index. 
B)  Use the Laspeyres index. 
C)  Multiply the Paasche Index and the Laspeyres index. 
D)  Take the geometric mean of the Paasche index and the Laspeyres index.

Question 17

The price of leisure

Accepted Answer

A)  is the same for everyone. 
B)  depends on the number of hours worked. 
C)  is measured as foregone earnings. 
D)  is immeasurable. 
A)  is the same for everyone. 
B)  depends on the number of hours worked. 
C)  is measured as foregone earnings. 
D)  is immeasurable.

Question 18

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Accepted Answer

A)  on the old budget line and the new budget line. 
B)  on the original indifference curve when faced with the original prices and when faced with the new prices. 
C)  on the new budget line and a hypothetical budget line that is a shift back to the original indifference curve parallel to the new budget line. 
D)  on the new indifference curve. 
A)  on the old budget line and the new budget line. 
B)  on the original indifference curve when faced with the original prices and when faced with the new prices. 
C)  on the new budget line and a hypothetical budget line that is a shift back to the original indifference curve parallel to the new budget line. 
D)  on the new indifference curve.

Question 19

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  utility maximization is not occurring. 
D)  future consumption is a luxury.

Question 20

If consumer income and prices increase by the same percentage,

Accepted Answer

A)  the consumer will buy more of both goods. 
B)  the consumer will buy more of both goods if they are both normal goods. 
C)  the consumer will buy less of both goods if they are both inferior goods. 
D)  the consumer's utility maximizing bundle stays the same. 
A)  the consumer will buy more of both goods. 
B)  the consumer will buy more of both goods if they are both normal goods. 
C)  the consumer will buy less of both goods if they are both inferior goods. 
D)  the consumer's utility maximizing bundle stays the same.

If the Engel curve for a good is upward sloping,the demand curve for that good must be downward sloping.

Draw a graph with Goods Per Day on the vertical axis and Leisure Hours Per Day increasing from left to right on the horizontal axis.Show that a person who works can work fewer hours and increase utility when the wage rate increases.

-The above figure shows Bobby's indifference map for soda and juice.B₁ indicates his original budget line.B₂ indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

The Consumer Price Index (CPI)measures inflation for every individual.

Inflation over time necessarily makes consumers worse off.

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

Ten individuals have $100 and identical preferences for picnics,p,and kayak trips,k,where U(p,k)= k^0.5p^0.5.The price of picnics is $5 and the price per kayak trip is $ 10.What is the shortage/surplus in the market when the supply of picnics totals 120?

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

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,the price for juice

If a person supplies fewer hours of labor in response to a wage increase,then

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

If a person supplies more hours of labor in response to a wage increase,then

Empirical studies have found that the labor supply curves for most parts of the population are

What is one way to adjust the CPI for substitution bias?

The price of leisure

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,

If consumer income and prices increase by the same percentage,

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 5: Applying Consumer Theory

If the Engel curve for a good is upward sloping,the demand curve for that good must be downward sloping.

Draw a graph with Goods Per Day on the vertical axis and Leisure Hours Per Day increasing from left to right on the horizontal axis.Show that a person who works can work fewer hours and increase utility when the wage rate increases.

-The above figure shows Bobby's indifference map for soda and juice.B1 indicates his original budget line.B2 indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

The Consumer Price Index (CPI)measures inflation for every individual.

Inflation over time necessarily makes consumers worse off.

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save less.This suggests that,for Tom,

Ten individuals have $100 and identical preferences for picnics,p,and kayak trips,k,where U(p,k)= k0.5p0.5.The price of picnics is $5 and the price per kayak trip is $ 10.What is the shortage/surplus in the market when the supply of picnics totals 120?

Explain what the slope of the income consumption curve shows about the income elasticity of demand.

-Even though Mary's income is very low,she makes sure that she purchases enough milk for her family to drink.As her income rises,she does buy more milk.Which graph in the above figure best represents Mary's Engel curve for milk?

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,the price for juice

If a person supplies fewer hours of labor in response to a wage increase,then

A Consumer Price Index (CPI)adjustment overcompensates for inflation because it ignores

If a consumer is compensated for the income effect that occurs when the price of a good increases,then his demand curves can never slope upward.

If a person supplies more hours of labor in response to a wage increase,then

Empirical studies have found that the labor supply curves for most parts of the population are

What is one way to adjust the CPI for substitution bias?

The price of leisure

When the price of a good changes,the income effect can be found by comparing the equilibrium quantities purchased

Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,

If consumer income and prices increase by the same percentage,

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

-The above figure shows Bobby's indifference map for soda and juice.B₁ indicates his original budget line.B₂ indicates his budget line resulting from a decrease in the price of soda.What change in quantity best represents his income effect?

Ten individuals have $100 and identical preferences for picnics,p,and kayak trips,k,where U(p,k)= k^0.5p^0.5.The price of picnics is $5 and the price per kayak trip is $ 10.What is the shortage/surplus in the market when the supply of picnics totals 120?