Question 1

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

Accepted Answer

A)  The substitution effect shows that the consumption of good   falls, regardless of whether   is a normal or inferior good. 
B)  The income effect shows that the consumption of good   rises if good   is an inferior good. 
C)  The overall effect shows that the consumer purchases more of good   if good   is a Giffen good. 
D)  The overall effect shows that the consumer purchases more of good   if good   is an inferior good. 
A)  The substitution effect shows that the consumption of good   falls, regardless of whether   is a normal or inferior good. 
B)  The income effect shows that the consumption of good   rises if good   is an inferior good. 
C)  The overall effect shows that the consumer purchases more of good   if good   is a Giffen good. 
D)  The overall effect shows that the consumer purchases more of good   if good   is an inferior good.

Question 2

If   is a normal good and the price of   falls

Accepted Answer

A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   . 
A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   .

Question 3

A negatively-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 4

Suppose when the consumer's income rises by 100%,the consumer's consumption of good   falls by 1%.We can infer that the consumer's income elasticity for good   is

Accepted Answer

A)  -1 
B)  -0.01 
C)  1 
D)  0.01 
A)  -1 
B)  -0.01 
C)  1 
D)  0.01

Question 5

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

Accepted Answer

A)  Income effect = -3.3; Substitution Effect = -2.1 
B)  Income effect = -2.3; Substitution Effect = -1.7 
C)  Income effect = -1.3; Substitution Effect = -1.7 
D)  Income effect = -1.7; Substitution Effect = -1.3 
A)  Income effect = -3.3; Substitution Effect = -2.1 
B)  Income effect = -2.3; Substitution Effect = -1.7 
C)  Income effect = -1.3; Substitution Effect = -1.7 
D)  Income effect = -1.7; Substitution Effect = -1.3

Question 6

A curve that represents the consumer's "willingness to pay" is the consumer's

Accepted Answer

A)  Exchange curve 
B)  Demand curve 
C)  Supply curve 
D)  None of the above 
A)  Exchange curve 
B)  Demand curve 
C)  Supply curve 
D)  None of the above

Question 7

Suppose the consumer's income elasticity for good   is -0.10 when monthly income is $1,000,and the consumer's income elasticity for good   is 0.10 when monthly income is $2,000.From this information we can infer that

Accepted Answer

A)  good   is an inferior good for low levels of income and a superior good for high levels of income. 
B)  good   is a normal good for low levels of income and an inferior good for high levels of income. 
C)  good   in an inferior good for low levels of income and a normal good for high levels of income. 
D)  good   is a Giffen good. 
A)  good   is an inferior good for low levels of income and a superior good for high levels of income. 
B)  good   is a normal good for low levels of income and an inferior good for high levels of income. 
C)  good   in an inferior good for low levels of income and a normal good for high levels of income. 
D)  good   is a Giffen good.

Question 8

Giffen goods

Accepted Answer

A)  are normal goods with a negative income effect. 
B)  are inferior goods with an income effect that is smaller in magnitude than the substitution effect. 
C)  are inferior goods with an income effect that is greater in magnitude than the substitution effect. 
D)  have downward sloping demand curves. 
A)  are normal goods with a negative income effect. 
B)  are inferior goods with an income effect that is smaller in magnitude than the substitution effect. 
C)  are inferior goods with an income effect that is greater in magnitude than the substitution effect. 
D)  have downward sloping demand curves.

Question 9

Evaluate the truthfulness of the following statements. I.The Engel curve for a normal good is upward-sloping.
II.The Engel curve for an inferior good is downward-sloping.

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 10

We could use the term "snob effect" to describe which of the following situations?

Accepted Answer

A)  I get great satisfaction from collecting Soviet-era posters because few people have them. 
B)  I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information. 
C)  I purchase more chocolate bars when the price of chocolate bars falls. 
D)  I decide to purchase a good because a politician suggests it. 
A)  I get great satisfaction from collecting Soviet-era posters because few people have them. 
B)  I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information. 
C)  I purchase more chocolate bars when the price of chocolate bars falls. 
D)  I decide to purchase a good because a politician suggests it.

Question 11

The concept of compensating 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 12

In this chapter,the term negative 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 13

Identify the truthfulness of the following statements. I.For normal goods,the income and substitution effects work in the same direction.
II.Some normal goods are Giffen goods.

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 14

If   is an inferior good and the price of   rises

Accepted Answer

A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   . 
A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   .

Question 15

Suppose the consumer's utility function is given by   where   The equation for this consumer's demand curve for   is

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 16

If   is an inferior good and the price of   falls

Accepted Answer

A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   . 
A)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase more   . 
B)  the substitution effect will induce the consumer to purchase more   and the income effect will induce the consumer to purchase less   . 
C)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase more   . 
D)  the substitution effect will induce the consumer to purchase less   and the income effect will induce the consumer to purchase less   .

Question 17

If a consumer's preferences for two goods,say food and clothing,are such that as income increases,consumption of food and clothing both increase,we can say that

Accepted Answer

A)  food and clothing are inferior goods. 
B)  food is a normal good and clothing is an inferior good. 
C)  food is an inferior good and clothing is a normal good. 
D)  food and clothing are both normal goods. 
A)  food and clothing are inferior goods. 
B)  food is a normal good and clothing is an inferior good. 
C)  food is an inferior good and clothing is a normal good. 
D)  food and clothing are both normal goods.

Question 18

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n)

Accepted Answer

A)  price-consumption curve. 
B)  Engel curve. 
C)  demand curve. 
D)  good-consumption curve. 
A)  price-consumption curve. 
B)  Engel curve. 
C)  demand curve. 
D)  good-consumption curve.

Question 19

An Engel curve for good   describes

Accepted Answer

A)  how the consumption of good   varies as the price of good   changes. 
B)  how the consumption of good   varies as the consumer's income changes. 
C)  how the consumption of good   varies as the consumption of good   changes. 
D)  how the consumption of good   varies as price-consumption curve changes. 
A)  how the consumption of good   varies as the price of good   changes. 
B)  how the consumption of good   varies as the consumer's income changes. 
C)  how the consumption of good   varies as the consumption of good   changes. 
D)  how the consumption of good   varies as price-consumption curve changes.

Question 20

Which of the following statements describes a backward-bending labor supply curve?

Accepted Answer

A)  Every hour that I work represents a loss of an hour of leisure. 
B)  I asked for extra hours this month to pay for a new bicycle. 
C)  When I received my last raise, I cut back on my overtime hours so that I could work fewer hours but earn the same amount of money per week. 
D)  I worked more hours when I was younger. 
A)  Every hour that I work represents a loss of an hour of leisure. 
B)  I asked for extra hours this month to pay for a new bicycle. 
C)  When I received my last raise, I cut back on my overtime hours so that I could work fewer hours but earn the same amount of money per week. 
D)  I worked more hours when I was younger.

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

If is a normal good and the price of falls

A negatively-sloped Engel curve implies a(n)

Suppose when the consumer's income rises by 100%,the consumer's consumption of good falls by 1%.We can infer that the consumer's income elasticity for good is

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

A curve that represents the consumer's "willingness to pay" is the consumer's

Suppose the consumer's income elasticity for good is -0.10 when monthly income is $1,000,and the consumer's income elasticity for good is 0.10 when monthly income is $2,000.From this information we can infer that

Giffen goods

Evaluate the truthfulness of the following statements. I.The Engel curve for a normal good is upward-sloping. II.The Engel curve for an inferior good is downward-sloping.

We could use the term "snob effect" to describe which of the following situations?

The concept of compensating variation means

In this chapter,the term negative network externality describes

Identify the truthfulness of the following statements. I.For normal goods,the income and substitution effects work in the same direction. II.Some normal goods are Giffen goods.

If is an inferior good and the price of rises

Suppose the consumer's utility function is given by where The equation for this consumer's demand curve for is

If is an inferior good and the price of falls

If a consumer's preferences for two goods,say food and clothing,are such that as income increases,consumption of food and clothing both increase,we can say that

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n)

An Engel curve for good describes

Which of the following statements describes a backward-bending labor supply curve?

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

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

If is a normal good and the price of falls

A negatively-sloped Engel curve implies a(n)

Suppose when the consumer's income rises by 100%,the consumer's consumption of good falls by 1%.We can infer that the consumer's income elasticity for good is

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

A curve that represents the consumer's "willingness to pay" is the consumer's

Suppose the consumer's income elasticity for good is -0.10 when monthly income is $1,000,and the consumer's income elasticity for good is 0.10 when monthly income is $2,000.From this information we can infer that

Giffen goods

Evaluate the truthfulness of the following statements. I.The Engel curve for a normal good is upward-sloping. II.The Engel curve for an inferior good is downward-sloping.

We could use the term "snob effect" to describe which of the following situations?

The concept of compensating variation means

In this chapter,the term negative network externality describes

Identify the truthfulness of the following statements. I.For normal goods,the income and substitution effects work in the same direction. II.Some normal goods are Giffen goods.

If is an inferior good and the price of rises

Suppose the consumer's utility function is given by where The equation for this consumer's demand curve for is

If is an inferior good and the price of falls

If a consumer's preferences for two goods,say food and clothing,are such that as income increases,consumption of food and clothing both increase,we can say that

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n)

An Engel curve for good describes

Which of the following statements describes a backward-bending labor supply curve?

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

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