Exam 5: Applying Consumer Theory

Employing a fixed-weight index like the Consumer Price Index to adjust a person's salary in response to inflation will overcompensate this person because doing so will allow this person to

A tax cut will unambiguously lower income-tax revenue.

-When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for dining out?

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

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

Before an uneven rise in prices Allan consumed 5 bread and 6 juice.After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice.Does the government payment represent a true cost-of-living adjustment (COLA)?

A movement upward along an upward sloping Engel curve corresponds to

A backward-bending labor supply curve implies that

Suppose the quantity of x is measured on the horizontal axis.If the price consumption curve is vertical when the price of x changes,then the demand for x is

-The above figure shows a consumer's indifference curves for soda and all other goods.Assuming a budget of $100,derive the consumer's demand for soda for prices of $4 and $10 per case of soda.Estimate the price elasticity of demand for soda.

If Bobby thinks that leisure is an inferior good,then his labor supply curve

Which of the following is the geometric mean of 4 and 9?

A Giffen good has

-Which graph in the above figure best represents a good that is an inferior good at some income levels,and a normal good at other income levels?

The substitution effect can be measured holding ________ constant.

Using a Paasche index to calculate the Consumer Price Index (CPI)

An inferior good exhibits

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y ∗ L and this person has no non-labor income.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply when the person wins a lottery prize of $100 per day.

A demand curve for a Giffen good would be

An individual derives utility from games,g (y-axis),and toy airplanes,a (x-axis),described by the utility function U(g,a)= g^0.6a^0.4.The price per game is $20 and the price of toy airplanes is $10.Using the slope of the income consumption curve (ICC),determine whether games and toy airplanes are normal or inferior goods when income increases from $100 to $200.