Question 1

We can derive a market demand curve for an item by

Accepted Answer

A)  multiplying each individual's demand curve by the number of consumers in the marketplace. 
B)  summing all of the quantities that would be demanded by individual consumers at different prices for that good and plotting the total quantities against price. 
C)  looking at how the equilibrium changes when we shift each individual's supply curve. 
D)  subtracting the price of an item from the supply curve. 
A)  multiplying each individual's demand curve by the number of consumers in the marketplace. 
B)  summing all of the quantities that would be demanded by individual consumers at different prices for that good and plotting the total quantities against price. 
C)  looking at how the equilibrium changes when we shift each individual's supply curve. 
D)  subtracting the price of an item from the supply curve. B

Question 2

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1
The equation for this consumer's demand curve for   when I x is

Accepted Answer

A)  xd = 0 
B)  xd =   
C)  xd =   -   
D)  xd = 1/2 
A)  xd = 0 
B)  xd =   
C)  xd =   -   
D)  xd = 1/2 A

Question 3

Consumer surplus is defined as

Accepted Answer

A)  The difference between the discounted amount and the original amount purchased of a good. 
B)  The difference between the maximum amount a consumer is willing to pay for a good and the amount he or she must actually pay when purchasing 
C)  The difference between the cost of producing a good and its purchase price. 
D)  The amount of the good purchased by a consumer over and above the minimum amount that the customer wanted of the good. 
A)  The difference between the discounted amount and the original amount purchased of a good. 
B)  The difference between the maximum amount a consumer is willing to pay for a good and the amount he or she must actually pay when purchasing 
C)  The difference between the cost of producing a good and its purchase price. 
D)  The amount of the good purchased by a consumer over and above the minimum amount that the customer wanted of the good. B

Question 4

The income effect associated with a change in the price of good x

Accepted Answer

A)  describes the change in the level of consumption as a result of the consumer's change in utility, holding price constant. 
B)  describes the change in the level of consumption, holding utility constant. 
C)  describes the change in relative purchasing power. 
D)  can be either negative or positive. 
A)  describes the change in the level of consumption as a result of the consumer's change in utility, holding price constant. 
B)  describes the change in the level of consumption, holding utility constant. 
C)  describes the change in relative purchasing power. 
D)  can be either negative or positive.

Question 5

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1
The equation for this consumer's demand curve for y when I x is

Accepted Answer

A)  yd = 0 
B)  yd =   
C)  yd =   
D)  yd = 1/2 
A)  yd = 0 
B)  yd =   
C)  yd =   
D)  yd = 1/2

Question 6

As the price of a good increases,holding the consumer's income and the price of the other good constant,the budget line will

Accepted Answer

A)  shift inward toward the origin. 
B)  shift outward away from the origin. 
C)  rotate the budget line inward toward the origin. 
D)  rotate the budget line outward away from the origin. 
A)  shift inward toward the origin. 
B)  shift outward away from the origin. 
C)  rotate the budget line inward toward the origin. 
D)  rotate the budget line outward away from the origin.

Question 7

Let U(x,y) =   with MUx =   and MUy =   .Let I = $100,Px = $25 and Py = $10 be the initial set of prices and income.Now,let Px fall to $10.What is the approximate compensating variation for this change in prices?

Accepted Answer

A)  24 
B)  30 
C)  34 
D)  40 
A)  24 
B)  30 
C)  34 
D)  40

Question 8

In this chapter,the term positive network externality describes

Accepted Answer

A)  the positive effect of consuming chocolate as income rises. 
B)  the snob effect. 
C)  the bandwagon effect. 
D)  the impact of a polluting firm on its local environment. 
A)  the positive effect of consuming chocolate as income rises. 
B)  the snob effect. 
C)  the bandwagon effect. 
D)  the impact of a polluting firm on its local environment.

Question 9

Identify the statement that is true.Assume that the price of good   increases.

Accepted Answer

A)  If x is a normal good, both the income and substitution effects lead to a fall in consumption of x. 
B)  The substitution effect leads to a decrease in consumption of x only if x is an inferior good. 
C)  If x is a normal good, the substitution effect alone leads to a decrease in consumption of x. 
D)  If x is an inferior good, the income effect alone leads to a decrease in consumption of good x. 
A)  If x is a normal good, both the income and substitution effects lead to a fall in consumption of x. 
B)  The substitution effect leads to a decrease in consumption of x only if x is an inferior good. 
C)  If x is a normal good, the substitution effect alone leads to a decrease in consumption of x. 
D)  If x is an inferior good, the income effect alone leads to a decrease in consumption of good x.

Question 10

A network externality can be said to exist when

Accepted Answer

A)  a recording artist appears on a popular TV show leading to an increase in popularity and record sales; this is called the "snob effect". 
B)  a recording artist appears on a popular TV show leading to an increase in popularity and record sales; this is called the "bandwagon effect". 
C)  many people try to access the internet at the same time leading to a system crash. 
D)  two television networks decide to merge. 
A)  a recording artist appears on a popular TV show leading to an increase in popularity and record sales; this is called the "snob effect". 
B)  a recording artist appears on a popular TV show leading to an increase in popularity and record sales; this is called the "bandwagon effect". 
C)  many people try to access the internet at the same time leading to a system crash. 
D)  two television networks decide to merge.

Question 11

Identify the truthfulness of the following statements.
I.It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region.
II.The income elasticity of demand for a normal good is negative.

Accepted Answer

A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true. 
A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true.

Question 12

Under what circumstances is the demand curve upward-sloping?

Accepted Answer

A)  When the good is a normal good. 
B)  When the good is an inferior good and the substitution effect outweighs the income effect. 
C)  When the good is an inferior good and the income effect outweighs the substitution effect. 
D)  The demand curve can never be upward-sloping. 
A)  When the good is a normal good. 
B)  When the good is an inferior good and the substitution effect outweighs the income effect. 
C)  When the good is an inferior good and the income effect outweighs the substitution effect. 
D)  The demand curve can never be upward-sloping.

Question 13

Identify which of the following statements is false.

Accepted Answer

A)  The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically. 
B)  The market demand curve is the horizontal sum of the individual demands for each price. 
C)  The market demand curve maintains the properties of the individual demand curves. 
D)  All of the above statements are true. 
A)  The market demand curve is the horizontal sum of the individual demands, once we sum the price vertically. 
B)  The market demand curve is the horizontal sum of the individual demands for each price. 
C)  The market demand curve maintains the properties of the individual demand curves. 
D)  All of the above statements are true.

Question 14

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called

Accepted Answer

A)  income elasticity of demand and it is negative when the good is a normal good. 
B)  income elasticity of demand and it is negative when the good is an inferior good. 
C)  price elasticity of demand and it is negative when the slope of the demand curve is negatively sloped. 
D)  None of the above. 
A)  income elasticity of demand and it is negative when the good is a normal good. 
B)  income elasticity of demand and it is negative when the good is an inferior good. 
C)  price elasticity of demand and it is negative when the slope of the demand curve is negatively sloped. 
D)  None of the above.

Question 15

A positively-sloped Engel curve implies a(n)

Accepted Answer

A)  inferior good. 
B)  normal good. 
C)  Giffen good. 
D)  marginal good. 
A)  inferior good. 
B)  normal good. 
C)  Giffen good. 
D)  marginal good.

Question 16

The concept of equivalent variation means

Accepted Answer

A)  the change in income necessary to hold the consumer at the final level of utility as price changes. 
B)  the change in income necessary to restore the consumer to the initial level of utility as price changes. 
C)  the income effect. 
D)  the substitution effect. 
A)  the change in income necessary to hold the consumer at the final level of utility as price changes. 
B)  the change in income necessary to restore the consumer to the initial level of utility as price changes. 
C)  the income effect. 
D)  the substitution effect.

Question 17

Consider a market with   and   .Suppose that initially income is I = 60,and that income then increases to I = 80.What is the increase in consumer surplus from this increase in income?

Accepted Answer

A)  1300 
B)  1368 
C)  1421 
D)  1472 
A)  1300 
B)  1368 
C)  1421 
D)  1472

Question 18

The substitution effect graphically is always denoted

Accepted Answer

A)  by movement along the original indifference curve, whereas the income effect is represented by a rotation of the budget line. 
B)  by moving in the direction of the item that is becoming relatively more expensive. 
C)  by moving in the direction of the item that is becoming relatively cheaper and the income effect is always denoted by a rotating budget line. 
D)  by movement along the original indifference curve, whereas the income effect is represented by a parallel shift of the budget line. 
A)  by movement along the original indifference curve, whereas the income effect is represented by a rotation of the budget line. 
B)  by moving in the direction of the item that is becoming relatively more expensive. 
C)  by moving in the direction of the item that is becoming relatively cheaper and the income effect is always denoted by a rotating budget line. 
D)  by movement along the original indifference curve, whereas the income effect is represented by a parallel shift of the budget line.

Question 19

One way of thinking of consumer surplus might be described as

Accepted Answer

A)  the total value of the sum of the difference of all consumers' willingness to pay for an item relative to the actual cost of the item in the market. 
B)  the excess amount that consumers earn relative to the poverty line. 
C)  the level of satisfaction that consumers reach from consuming an item. 
D)  the excess of consumer demand relative to supply. 
A)  the total value of the sum of the difference of all consumers' willingness to pay for an item relative to the actual cost of the item in the market. 
B)  the excess amount that consumers earn relative to the poverty line. 
C)  the level of satisfaction that consumers reach from consuming an item. 
D)  the excess of consumer demand relative to supply.

Question 20

The consumer's demand curve can be obtained analytically by solving which two equations?

Accepted Answer

A)    ;   where   is the initial level of utility. 
B)    ;   
C)    ;   where   is the initial level of utility. 
D)    ;   where   is the final level of utility. 
A)    ;   where   is the initial level of utility. 
B)    ;   
C)    ;   where   is the initial level of utility. 
D)    ;   where   is the final level of utility.

We can derive a market demand curve for an item by

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for when I < P_x is

Consumer surplus is defined as

The income effect associated with a change in the price of good x

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for y when I < P_x is

As the price of a good increases,holding the consumer's income and the price of the other good constant,the budget line will

Let U(x,y) = with MU_x = and MU_y = .Let I = $100,P_x = $25 and P_y = $10 be the initial set of prices and income.Now,let P_x fall to $10.What is the approximate compensating variation for this change in prices?

In this chapter,the term positive network externality describes

Identify the statement that is true.Assume that the price of good increases.

A network externality can be said to exist when

Identify the truthfulness of the following statements. I.It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region. II.The income elasticity of demand for a normal good is negative.

Under what circumstances is the demand curve upward-sloping?

Identify which of the following statements is false.

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called

A positively-sloped Engel curve implies a(n)

The concept of equivalent variation means

Consider a market with and .Suppose that initially income is I = 60,and that income then increases to I = 80.What is the increase in consumer surplus from this increase in income?

The substitution effect graphically is always denoted

One way of thinking of consumer surplus might be described as

The consumer's demand curve can be obtained analytically by solving which two equations?

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 5: The Theory of Demand

We can derive a market demand curve for an item by

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1 The equation for this consumer's demand curve for when I < Px is

Consumer surplus is defined as

The income effect associated with a change in the price of good x

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1 The equation for this consumer's demand curve for y when I < Px is

As the price of a good increases,holding the consumer's income and the price of the other good constant,the budget line will

Let U(x,y) = with MUx = and MUy = .Let I = $100,Px = $25 and Py = $10 be the initial set of prices and income.Now,let Px fall to $10.What is the approximate compensating variation for this change in prices?

In this chapter,the term positive network externality describes

Identify the statement that is true.Assume that the price of good increases.

A network externality can be said to exist when

Identify the truthfulness of the following statements. I.It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region. II.The income elasticity of demand for a normal good is negative.

Under what circumstances is the demand curve upward-sloping?

Identify which of the following statements is false.

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called

A positively-sloped Engel curve implies a(n)

The concept of equivalent variation means

Consider a market with and .Suppose that initially income is I = 60,and that income then increases to I = 80.What is the increase in consumer surplus from this increase in income?

The substitution effect graphically is always denoted

One way of thinking of consumer surplus might be described as

The consumer's demand curve can be obtained analytically by solving which two equations?

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for when I < P_x is

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for y when I < P_x is

Let U(x,y) = with MU_x = and MU_y = .Let I = $100,P_x = $25 and P_y = $10 be the initial set of prices and income.Now,let P_x fall to $10.What is the approximate compensating variation for this change in prices?