Question 1

If a good is considered a normal good,the demand curve will shift ________ when income increases because ________.

Accepted Answer

A)  right; the income and substitution effects move in the same direction. 
B)  right; the income and substitution effects move in the opposite direction. 
C)  left; the income and substitution effects move in the same direction. 
D)  left; the income and substitution effects move in the opposite direction. 
A)  right; the income and substitution effects move in the same direction. 
B)  right; the income and substitution effects move in the opposite direction. 
C)  left; the income and substitution effects move in the same direction. 
D)  left; the income and substitution effects move in the opposite direction.

Question 2

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g0.9a0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

Accepted Answer

A)  There will be a shortage of 3 cigarettes. 
B)  There will be a surplus of 3 cigarettes. 
C)  There will be a shortage of 2/3 cigarettes. 
D)  There will be a surplus of 2/3 cigarettes. 
A)  There will be a shortage of 3 cigarettes. 
B)  There will be a surplus of 3 cigarettes. 
C)  There will be a shortage of 2/3 cigarettes. 
D)  There will be a surplus of 2/3 cigarettes.

Question 3

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

Accepted Answer

A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  supply the same hours of labor. 
D)  have a backward bend in her labor supply curve. 
A)  supply fewer hours of labor. 
B)  supply more hours of labor. 
C)  supply the same hours of labor. 
D)  have a backward bend in her labor supply curve.

Question 4

For an inferior good,if the income effect more than offsets the substitution effect,we call that good

Accepted Answer

A)  a Giffen good. 
B)  a normal good. 
C)  an inferior good. 
D)  a neutral good. 
A)  a Giffen good. 
B)  a normal good. 
C)  an inferior good. 
D)  a neutral good.

Question 5

Suppose the quantity of x is measured on the horizontal axis.If the income consumption curve is vertical,then the income elasticity of demand for x is

Accepted Answer

A)  0. 
B)  1. 
C)  -1. 
D)  There is not enough information to determine the income elasticity of demand for x. 
A)  0. 
B)  1. 
C)  -1. 
D)  There is not enough information to determine the income elasticity of demand for x.

Question 6

The Fisher index

Accepted Answer

A)  uses the arithmetic mean of the Paasche index and the Laspeyres index. 
B)  uses the standard deviation of the Paasche index and the Laspeyres index. 
C)  uses the geometric mean of the Paasche index and the Laspeyres index. 
D)  uses the harmonic mean of the Paasche index and the Laspeyres index. 
A)  uses the arithmetic mean of the Paasche index and the Laspeyres index. 
B)  uses the standard deviation of the Paasche index and the Laspeyres index. 
C)  uses the geometric mean of the Paasche index and the Laspeyres index. 
D)  uses the harmonic mean of the Paasche index and the Laspeyres index.

Question 7

One characteristic of a Giffen good is that it

Accepted Answer

A)  is a luxury good. 
B)  is an inferior good. 
C)  has an upward-sloping Engel curve. 
D)  All of the above. 
A)  is a luxury good. 
B)  is an inferior good. 
C)  has an upward-sloping Engel curve. 
D)  All of the above.

Question 8

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Accepted Answer

A) True 
 B)False

Question 9

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

Accepted Answer

A)  substitution effect on coffee is positive, and the income effect on coffee is positive. 
B)  substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. 
C)  substitution effect on coffee is positive, and the income effect on coffee is ambiguous. 
D)  substitution effect on coffee is ambiguous, and the income effect on coffee is positive. 
A)  substitution effect on coffee is positive, and the income effect on coffee is positive. 
B)  substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. 
C)  substitution effect on coffee is positive, and the income effect on coffee is ambiguous. 
D)  substitution effect on coffee is ambiguous, and the income effect on coffee is positive.

Question 10

-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 substitution effect?

Accepted Answer

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

Question 11

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

Accepted Answer

Engel curve A implies that a certain lev

Question 12

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes,then the demand curve for that good will be upward sloping.

Accepted Answer

A) True 
 B)False

Question 13

Newspaper accounts of the U.S.labor market often point out that many people are working more hours than their parents did.What might explain this phenomenon?

Accepted Answer

A)  the substitution effect 
B)  the endowment effect 
C)  bounded rationality 
D)  the income effect 
A)  the substitution effect 
B)  the endowment effect 
C)  bounded rationality 
D)  the income effect

Question 14

Suppose the typical consumer only purchases food and clothing,and her utility can be expressed as
U = F ∗ C.Currently,food costs $5 per unit and clothing costs $2 per unit.Her income is $70.If the price of food increases to $6,compare the resulting Laspeyres price index with a true cost of living index.

Accepted Answer

Maximizing utility subject to the initia

Question 15

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

Accepted Answer

A)  tax rates were low already. 
B)  the relevant portion of the labor supply curve is upward sloping. 
C)  the relevant portion of the labor supply curve is downward sloping. 
D)  workers can be easily fooled. 
A)  tax rates were low already. 
B)  the relevant portion of the labor supply curve is upward sloping. 
C)  the relevant portion of the labor supply curve is downward sloping. 
D)  workers can be easily fooled.

Question 16

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2.Any amount he saves will earn interest at a rate of 10%.Draw Joe's budget line.(Hint: He can either consume all $1000 this year or consume nothing this year and have $1,100 next year.)Assuming convex indifference curves,show that an increase in the rate of interest can cause Joe's savings to either increase or decrease.Explain in terms of income and substitution effect.

Accepted Answer

@#IMG-DLM& See the above figure.On the graph,his o

Question 17

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5.Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent.Denote hours worked as H and wage per hour as w.

Accepted Answer

Let t = income tax rate.Since Y = net in

Question 18

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

Accepted Answer

Rearranging yields U = (Y^* + 10H)+ (24 -

Question 19

Sandy derives utility from consuming "all other goods," g,and clean air (measured by particulate matter removed per m3),a,as measured by the utility function U(g,a)= g0.6a0.4.The price of "all other goods" is $20 and the price of clean air (abatement)equals $10.Brian is the only other consumer in the market for clean air and demands 10 units of clean air.What is the market demand for clean air?

Accepted Answer

A)  Total market demand is 14 units of clean air. 
B)  Total market demand is 12 units of clean air. 
C)  Total market demand is 10 units of clean air. 
D)  Total market demand is 16 units of clean air. 
A)  Total market demand is 14 units of clean air. 
B)  Total market demand is 12 units of clean air. 
C)  Total market demand is 10 units of clean air. 
D)  Total market demand is 16 units of clean air.

Question 20

In the case of a normal good,

Accepted Answer

A)  demand curves always slope downward. 
B)  the income effect and substitution effect are in the same direction. 
C)  the Engel curve slopes upward. 
D)  All of the above. 
A)  demand curves always slope downward. 
B)  the income effect and substitution effect are in the same direction. 
C)  the Engel curve slopes upward. 
D)  All of the above.

If a good is considered a normal good,the demand curve will shift when income increases because .

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g^0.9a^0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

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

For an inferior good,if the income effect more than offsets the substitution effect,we call that good

Suppose the quantity of x is measured on the horizontal axis.If the income consumption curve is vertical,then the income elasticity of demand for x is

The Fisher index

One characteristic of a Giffen good is that it

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

-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 substitution effect?

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes,then the demand curve for that good will be upward sloping.

Newspaper accounts of the U.S.labor market often point out that many people are working more hours than their parents did.What might explain this phenomenon?

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5.Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent.Denote hours worked as H and wage per hour as w.

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

In the case of a normal good,

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 a good is considered a normal good,the demand curve will shift ________ when income increases because ________.

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g0.9a0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

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

For an inferior good,if the income effect more than offsets the substitution effect,we call that good

Suppose the quantity of x is measured on the horizontal axis.If the income consumption curve is vertical,then the income elasticity of demand for x is

The Fisher index

One characteristic of a Giffen good is that it

An increase in income (all else equal)will ALWAYS lead to a parallel shift of the budget line.

Suppose Lisa spends all of her money on books and coffee.When the price of coffee decreases,the

-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 substitution effect?

-The above figure shows three different Engel curves.Rank them in terms of income elasticity.

If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes,then the demand curve for that good will be upward sloping.

Newspaper accounts of the U.S.labor market often point out that many people are working more hours than their parents did.What might explain this phenomenon?

A tax cut that raises the after-tax wage rate will most likely result in more hours worked if

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5.Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent.Denote hours worked as H and wage per hour as w.

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

In the case of a normal good,

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

If a good is considered a normal good,the demand curve will shift when income increases because .

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s)= 10g^0.9a^0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

-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 substitution effect?

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5.Show what happens to the person's labor supply curve when the income tax is cut from 70 percent to 30 percent.Denote hours worked as H and wage per hour as w.

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L^0.5.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.