Question 1

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 2

Ian views playing Wartcraft and drinking soda as perfect complements (one soda with one hour of playing Wartcraft).Currently,sodas are $1 each and Wartcraft costs $1 per hour.Ian has $12 of income.
a.Compute Ian's Compensating Variation if the price of Wartcraft rises to $2.
b.Compute Ian's Equivalent Variation if the price of Wartcraft rises to $2.
c.Compute Ian's change in Consumer Surplus if the price of Wartcraft rises to $2.

Accepted Answer

a.Ian initially will purchase six units

Question 3

The difference between the equivalent variation and compensating variation is greater for goods with large income elasticities.

Accepted Answer

A) True 
 B)False

Question 4

What does it mean to say the labor supply is backwards bending? How does this relate to the direction and magnitude of the income and substitution effects? Will the labor supply be backwards bending if leisure is a normal good? Will it be backwards bending if leisure is an inferior good?

Accepted Answer

Backwards bending means that as the wage

Question 5

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).At the current price of 35¢ per minute,consumer surplus equals

Accepted Answer

A) $301. 
B) $924.50. 
C) $1,225.50. 
D) $1,250. 
A) $301. 
B) $924.50. 
C) $1,225.50. 
D) $1,250.

Question 6

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 7

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).The current price is 35¢ per minute.What is the consumer surplus at the current price?

Accepted Answer

A) 924.5 
B) 1075 
C) 301 
D) 1250 
A) 924.5 
B) 1075 
C) 301 
D) 1250

Question 8

Julia is offered two options of government subsidies: $100 food stamp or $100 cash.If she receives $100 cash,she will spend $80 on food.If equivalent evaluation is measured for the situation when only $100 is available to her,the equivalent evaluation is

Accepted Answer

A) greater than $100. 
B) equal to $100. 
C) less than $100. 
D) Not enough information. 
A) greater than $100. 
B) equal to $100. 
C) less than $100. 
D) Not enough information.

Question 9

Sarah and David both have linear demand curves for lemonade.Sarah's demand is more elastic than David's.At the current price of $0.50 per glass,they both choose to buy 5 glasses.A change in the price of lemonade to $0.75 per glass will

Accepted Answer

A) decrease Sarah's consumer surplus more than David's. 
B) decrease David's consumer surplus more than Sarah's. 
C) increase Sarah's consumer surplus more than David's. 
D) increase David's consumer surplus more than Sarah's. 
A) decrease Sarah's consumer surplus more than David's. 
B) decrease David's consumer surplus more than Sarah's. 
C) increase Sarah's consumer surplus more than David's. 
D) increase David's consumer surplus more than Sarah's.

Question 10

Shin's uncompensated demand for widgets is given by Q = 10/p.According to this demand,Shin's Marginal Willingness to Pay function is

Accepted Answer

A) 10/Q. 
B) 10/p. 
C) 10Q. 
D) -10/p2. 
A) 10/Q. 
B) 10/p. 
C) 10Q. 
D) -10/p2.

Question 11

The Compensating Variation for an increase in the price of a good is

Accepted Answer

A) the minimum amount of money a consumer would accept to voluntarily accept the price increase. 
B) the maximum amount of money a consumer would pay to avoid the price increase. 
C) the change in consumer surplus resulting from a price increase. 
D) the change in utility resulting from the increase in price. 
A) the minimum amount of money a consumer would accept to voluntarily accept the price increase. 
B) the maximum amount of money a consumer would pay to avoid the price increase. 
C) the change in consumer surplus resulting from a price increase. 
D) the change in utility resulting from the increase in price.

Question 12

Rachel has an income of $10 which she spends on burritos and other goods ("other goods" represents a composite of all other goods).The price of burritos is $1 as is the price of other goods.
a.Suppose the government agrees to pay half of Rachel's burrito bill,so burritos now cost her $.50 apiece.She now chooses to buy eight burritos.On a graph with Burritos on the x-axis and other goods on the y-axis,draw Rachel's budget constraints before and after the subsidy program.Also include an indifference curve and the coordinates of Rachel's optimal bundle with the subsidy.
b.Now,suppose the government ends the program in part a.and replaces it with a new and simpler program: Rachel just gets a cash gift of $4.Show his new budget line.Is Rachel still able to afford her optimal bundle that she chose with the subsidy?
c.How much does each program cost the government? Which program does Rachel prefer? Explain.

Accepted Answer

a. @#IMG-DLM& 
b.It goes through the point (6,8)so

Question 13

Job is a smoker.He has a utility function for cigarettes smoked in bars (q1)and a composite good (q2)given by
U(q1,q2)= 10q1.5 + q2
Job's income is $100 and faces prices p1 = 5 and p2 = 1.The government is planning to ban smoking in bars.Compute the compensating variation.

Accepted Answer

Find the utility before the smoking ban.

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

Kisa consumes the same amount of cigarettes each week regardless of her income (assume that her income is sufficiently large such that the quantity is affordable).The Equivalent Variation equals the Compensating Variation.

Accepted Answer

A) True 
 B)False

Question 16

Sandy's current consumer surplus for candy is 20.Candy is an inferior good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

Accepted Answer

A) increase. 
B) decrease. 
C) remain the same. 
D) Not enough information. 
A) increase. 
B) decrease. 
C) remain the same. 
D) Not enough information.

Question 17

Sandy's current consumer surplus for candy is 20.Candy is a normal good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

Accepted Answer

A) increase. 
B) decrease. 
C) remain the same. 
D) Not enough information. 
A) increase. 
B) decrease. 
C) remain the same. 
D) Not enough information.

Question 18

Steve's utility for socks (q1)and other goods (q2)is given by
U(q1,q2)= 10q1.1 q2.9
The price of the composite good is p2 = 1 and the price of a pair of socks is p1 = 2.Steve's income is Y = 100.Every year,Steve's mom buys him 20 pairs of socks.Find the equivalent variation of the gift.What is the difference between the cost of the gift and the equivalent valuation cash amount?

Accepted Answer

First determine the utility level from t

Question 19

The Equivalent Variation resulting from a quota is best defined as

Accepted Answer

A) the amount a consumer would pay to have the quota removed. 
B) the amount the consumer would need to voluntarily accept the quota. 
C) the amount a consumer would pay for the quantity specified by the quota. 
D) the loss in utility resulting from the quota. 
A) the amount a consumer would pay to have the quota removed. 
B) the amount the consumer would need to voluntarily accept the quota. 
C) the amount a consumer would pay for the quantity specified by the quota. 
D) the loss in utility resulting from the quota.

Question 20

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.

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

The difference between the equivalent variation and compensating variation is greater for goods with large income elasticities.

What does it mean to say the labor supply is backwards bending? How does this relate to the direction and magnitude of the income and substitution effects? Will the labor supply be backwards bending if leisure is a normal good? Will it be backwards bending if leisure is an inferior good?

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).At the current price of 35¢ per minute,consumer surplus equals

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

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).The current price is 35¢ per minute.What is the consumer surplus at the current price?

Julia is offered two options of government subsidies: $100 food stamp or $100 cash.If she receives $100 cash,she will spend $80 on food.If equivalent evaluation is measured for the situation when only $100 is available to her,the equivalent evaluation is

Sarah and David both have linear demand curves for lemonade.Sarah's demand is more elastic than David's.At the current price of $0.50 per glass,they both choose to buy 5 glasses.A change in the price of lemonade to $0.75 per glass will

Shin's uncompensated demand for widgets is given by Q = 10/p.According to this demand,Shin's Marginal Willingness to Pay function is

The Compensating Variation for an increase in the price of a good is

Job is a smoker.He has a utility function for cigarettes smoked in bars (q₁)and a composite good (q₂)given by U(q₁,q₂)= 10q₁^.5 + q₂ Job's income is $100 and faces prices p₁ = 5 and p₂ = 1.The government is planning to ban smoking in bars.Compute the compensating variation.

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

Kisa consumes the same amount of cigarettes each week regardless of her income (assume that her income is sufficiently large such that the quantity is affordable).The Equivalent Variation equals the Compensating Variation.

Sandy's current consumer surplus for candy is 20.Candy is an inferior good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

Sandy's current consumer surplus for candy is 20.Candy is a normal good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

The Equivalent Variation resulting from a quota is best defined as

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

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

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 5: Consumer Welfare and Policy Analysis

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

The difference between the equivalent variation and compensating variation is greater for goods with large income elasticities.

What does it mean to say the labor supply is backwards bending? How does this relate to the direction and magnitude of the income and substitution effects? Will the labor supply be backwards bending if leisure is a normal good? Will it be backwards bending if leisure is an inferior good?

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).At the current price of 35¢ per minute,consumer surplus equals

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

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).The current price is 35¢ per minute.What is the consumer surplus at the current price?

Julia is offered two options of government subsidies: $100 food stamp or $100 cash.If she receives $100 cash,she will spend $80 on food.If equivalent evaluation is measured for the situation when only $100 is available to her,the equivalent evaluation is

Sarah and David both have linear demand curves for lemonade.Sarah's demand is more elastic than David's.At the current price of $0.50 per glass,they both choose to buy 5 glasses.A change in the price of lemonade to $0.75 per glass will

Shin's uncompensated demand for widgets is given by Q = 10/p.According to this demand,Shin's Marginal Willingness to Pay function is

The Compensating Variation for an increase in the price of a good is

Job is a smoker.He has a utility function for cigarettes smoked in bars (q1)and a composite good (q2)given by U(q1,q2)= 10q1.5 + q2 Job's income is $100 and faces prices p1 = 5 and p2 = 1.The government is planning to ban smoking in bars.Compute the compensating variation.

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

Kisa consumes the same amount of cigarettes each week regardless of her income (assume that her income is sufficiently large such that the quantity is affordable).The Equivalent Variation equals the Compensating Variation.

Sandy's current consumer surplus for candy is 20.Candy is an inferior good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

Sandy's current consumer surplus for candy is 20.Candy is a normal good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

The Equivalent Variation resulting from a quota is best defined as

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

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

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

Job is a smoker.He has a utility function for cigarettes smoked in bars (q₁)and a composite good (q₂)given by U(q₁,q₂)= 10q₁^.5 + q₂ Job's income is $100 and faces prices p₁ = 5 and p₂ = 1.The government is planning to ban smoking in bars.Compute the compensating variation.