Question 1

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

Accepted Answer

A) the price of the good changes. 
B) the price of substitute goods changes. 
C) income changes. 
D) All of the above. 
A) the price of the good changes. 
B) the price of substitute goods changes. 
C) income changes. 
D) All of the above. A

Question 2

Suppose Joe earns $1,000 in year 1 and $0 in year 2.Any amount he saves will earn interest at a rate of 0%.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

See the above figure.On the graph,his original bundle is

so that his savings equal 1000 - C1^*.A higher interest rate rotates the budget line so that,depending on the shape of his indifference map,he may choose either e₂,which means savings increase,or e₃,which means savings decrease.One plus the interest rate represents the price of current consumption.A higher interest rate has two effects.The substitution effect means that Joe will save more because current consumption has become more expensive.The income effect says Joe will save less because,with the higher interest rate,lower savings could actually generate more future consumption.

Question 3

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  False

Question 4

A typical consumer spends 30% of income on housing and housing is a necessity for consumers (the income elasticity for housing is 0 H O?

Accepted Answer

The weighted income elasticiti

Question 5

Jill consumes nothing but soup and cola.It is possible that both soup and cola are necessities for Jill.

Accepted Answer

A) True 
 B)False

Question 6

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?

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 7

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

Accepted Answer

A) Larry's Engel curve for pork will be upward sloping. 
B) Larry's Engel curve for pork will be downward sloping. 
C) Larry's Engel curve for pork will be backward bending. 
D) Larry's Engel curve for pork cannot be derived from the information provided. 
A) Larry's Engel curve for pork will be upward sloping. 
B) Larry's Engel curve for pork will be downward sloping. 
C) Larry's Engel curve for pork will be backward bending. 
D) Larry's Engel curve for pork cannot be derived from the information provided.

Question 8

Draw budget constraints,indifference curves,and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

Accepted Answer

@#IMG-DLM& See the a

Question 9

-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 frozen dinners?

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

Jerry spends his entire income on two goods,Bran and Tea.Every month he spends half of his income on each of these goods.Jerry's income elasticity of demand for Bran is -.75.What is the income elasticity of demand for Tea?

Accepted Answer

A) 2.75 
B) 0.36 
C) -2.75 
D) Unknown with the information provided 
A) 2.75 
B) 0.36 
C) -2.75 
D) Unknown with the information provided

Question 11

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

Accepted Answer

The income elasticities differ

Question 12

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

Accepted Answer

A) Pork is an inferior good. 
B) Ham is an inferior good. 
C) Neither pork nor ham is an inferior good. 
D) Both ham and pork are inferior goods. 
A) Pork is an inferior good. 
B) Ham is an inferior good. 
C) Neither pork nor ham is an inferior good. 
D) Both ham and pork are inferior goods.

Question 13

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

Accepted Answer

A) Yes,if the two consumption bundles lie on the same indifference curve. 
B) Yes,if the second bundle yields more utility than the first. 
C) No,the first bundle is clearly preferred. 
D) Not enough information. 
A) Yes,if the two consumption bundles lie on the same indifference curve. 
B) Yes,if the second bundle yields more utility than the first. 
C) No,the first bundle is clearly preferred. 
D) Not enough information.

Question 14

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

Accepted Answer

A) the income effect is greater than the substitution effect. 
B) the income effect is smaller than the substitution effect. 
C) consumption of hamburger will increase. 
D) We are unable to judge the change of hamburger consumption. 
A) the income effect is greater than the substitution effect. 
B) the income effect is smaller than the substitution effect. 
C) consumption of hamburger will increase. 
D) We are unable to judge the change of hamburger consumption.

Question 15

Many manufacturers sell products labeled as having imperfections at a discount at their factory outlets but do not ship these imperfect goods to regular retail outlets.Why?

Accepted Answer

There is some substitutability between t

Question 16

When deriving an Engel curve,the prices of both goods

Accepted Answer

A) are held constant. 
B) increase by the same percentage as income. 
C) decrease by the same percentage as income. 
D) can either decrease,increase or stay the same. 
A) are held constant. 
B) increase by the same percentage as income. 
C) decrease by the same percentage as income. 
D) can either decrease,increase or stay the same.

Question 17

Dorothy lives in a city with high air pollution.Pollution is a bad,but she is able to avoid air pollution by wearing a face mask.Her preferences are given by
U(q1,q2)= (q1 - P)2q22
where q1 is the amount of time she spends wearing a mask,P is the amount of pollution and q2 is a composite of other goods (p2 = 1).Dorothy must decide how much to wear a mask and how much q2 to purchase.The price of masks is pM.Assume q1* > P when answering this question.
a.Derive Dorothy's demand for masks,q1*(p1,Y,P)
b.How does the quantity of pollution affect the demand for masks? That is,find q1*/P.
c.How does her income influence the quantity of masks she purchases? That is,find q1*/Y.
d.What condition must hold for the assumption q1* > P to hold?

Accepted Answer

a.q₁* = (Y + p₁P)/2p₁ b.dq₁*/dP =

Question 18

-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.

Accepted Answer

At a price of $4,15 cases are

Question 19

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

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) There is not enough information to determine the price elasticity of demand for x. 
A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) There is not enough information to determine the price elasticity of demand for x.

Question 20

Inflation over time necessarily makes consumers worse off.

Accepted Answer

A) True 
 B)False

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

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.

A typical consumer spends 30% of income on housing and housing is a necessity for consumers (the income elasticity for housing is 0 < ξ_H < 1).What are the maximum and minimum values for the income elasticity of all other goods,ξ_O?

Jill consumes nothing but soup and cola.It is possible that both soup and cola are necessities for Jill.

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

Draw budget constraints,indifference curves,and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

Jerry spends his entire income on two goods,Bran and Tea.Every month he spends half of his income on each of these goods.Jerry's income elasticity of demand for Bran is -.75.What is the income elasticity of demand for Tea?

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

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

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

Many manufacturers sell products labeled as having imperfections at a discount at their factory outlets but do not ship these imperfect goods to regular retail outlets.Why?

When deriving an Engel curve,the prices of both goods

-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.

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

Inflation over time necessarily makes consumers worse off.

Introduction

Supply and Demand

A Consumers Constrained Choice

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 4: Demand

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

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.

A typical consumer spends 30% of income on housing and housing is a necessity for consumers (the income elasticity for housing is 0 < ξH < 1).What are the maximum and minimum values for the income elasticity of all other goods,ξO?

Jill consumes nothing but soup and cola.It is possible that both soup and cola are necessities for Jill.

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

Draw budget constraints,indifference curves,and the income consumption curve for a good that has an income elasticity that is perfectly inelastic.

Jerry spends his entire income on two goods,Bran and Tea.Every month he spends half of his income on each of these goods.Jerry's income elasticity of demand for Bran is -.75.What is the income elasticity of demand for Tea?

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

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

Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?

Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,

Many manufacturers sell products labeled as having imperfections at a discount at their factory outlets but do not ship these imperfect goods to regular retail outlets.Why?

When deriving an Engel curve,the prices of both goods

-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.

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

Inflation over time necessarily makes consumers worse off.

Introduction

Supply and Demand

A Consumers Constrained Choice

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

A typical consumer spends 30% of income on housing and housing is a necessity for consumers (the income elasticity for housing is 0 < ξ_H < 1).What are the maximum and minimum values for the income elasticity of all other goods,ξ_O?