Question 1

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that good $x$ is a(n)

Accepted Answer

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

Question 2

The income effect is

Accepted Answer

A)  the change in the amount of the good consumed holding the level of income constant. 
B)  the change in the amount of the good consumed as the price of the good changes holding income constant. 
C)  the change in the amount of the good consumed as the price of the good changes holding utility constant. 
D)  the change in the amount of the good consumed as the consumer's utility changes holding the price of the good constant. 
A)  the change in the amount of the good consumed holding the level of income constant. 
B)  the change in the amount of the good consumed as the price of the good changes holding income constant. 
C)  the change in the amount of the good consumed as the price of the good changes holding utility constant. 
D)  the change in the amount of the good consumed as the consumer's utility changes holding the price of the good constant.

Question 3

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ only increases 1%. We can infer that good $x$ is a(n)

Accepted Answer

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

Question 4

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 5

As the price of a good whose units are measured along the x-axis 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 such that the y-intercept stays the same and the x-intercept shifts toward the origin. 
D)  rotate outward away from the origin. 
A)  shift inward toward the origin. 
B)  shift outward away from the origin. 
C)  rotate such that the y-intercept stays the same and the x-intercept shifts toward the origin. 
D)  rotate outward away from the origin.

Question 6

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 7

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 $x$ when I x is

Accepted Answer

A)  xd = 0 
B)  xd = $\frac { I } { 2 P _ { x } }$ 
C)  xd = $\frac { I } { 2 P _ { x } }$ -$\frac { 1 } { 2 }$ 
D)  xd = 1/2 
A)  xd = 0 
B)  xd = $\frac { I } { 2 P _ { x } }$ 
C)  xd = $\frac { I } { 2 P _ { x } }$ -$\frac { 1 } { 2 }$ 
D)  xd = 1/2

Question 8

Giffen goods probably occur most frequently when the good in question is a

Accepted Answer

A)  luxury item like jewelry or yachts. 
B)  low-priced item that is insignificant relative to a person's total consumption. 
C)  a staple of a person's consumption pattern or represents a big share of a person's total expenditures. 
D)  technology-related item. 
A)  luxury item like jewelry or yachts. 
B)  low-priced item that is insignificant relative to a person's total consumption. 
C)  a staple of a person's consumption pattern or represents a big share of a person's total expenditures. 
D)  technology-related item.

Question 9

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 = $\frac { I } { 2 P _ { y } }$ 
C)  yd = $\frac { I } { P _ { y } }$ 
D)  yd = 1/2 
A)  yd = 0 
B)  yd = $\frac { I } { 2 P _ { y } }$ 
C)  yd = $\frac { I } { P _ { y } }$ 
D)  yd = 1/2

Question 10

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 11

Which of the following is held constant along an income-consumption curve?

Accepted Answer

A)  Income. 
B)  Consumption of all goods. 
C)  The price of all goods other than the good of interest. 
D)  The prices of all goods. 
A)  Income. 
B)  Consumption of all goods. 
C)  The price of all goods other than the good of interest. 
D)  The prices of all goods.

Question 12

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 13

Suppose the consumer's utility function is given by U(x,y) = x1/4y3/4 where $M U _ { x } = \frac { y ^ { \frac { 3 } { 4 } } } { 4 x ^ { \frac { 3 } { 4 } } }$ $M U _ { y } = \frac { 3 x ^ { \frac { 1 } { 4 } } } { 4 y ^ { \frac { 1 } { 4 } } }$ The equation for this consumer's demand curve for $x$ is

Accepted Answer

A)  $x = \frac { I } { 2 P _ { x } }$ 
B)  $x = \frac { I } { 4 P _ { x } }$ 
C)  $x = \frac { I } { P _ { x } }$ 
D)  $x = \frac { 3 I } { 4 P _ { x } }$ 
A)  $x = \frac { I } { 2 P _ { x } }$ 
B)  $x = \frac { I } { 4 P _ { x } }$ 
C)  $x = \frac { I } { P _ { x } }$ 
D)  $x = \frac { 3 I } { 4 P _ { x } }$

Question 14

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.

Question 15

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd.  Suppose that the market is initially in equilibrium at a price of $10. Now suppose that the price rises to $14. What is the change in consumer surplus?

Accepted Answer

A)  An increase of 38. 
B)  A decrease of 38. 
C)  A decrease of 42. 
D)  A decrease of 36. 
A)  An increase of 38. 
B)  A decrease of 38. 
C)  A decrease of 42. 
D)  A decrease of 36.

Question 16

Identify which of the following statements is false. The "substitution bias" of the CPI

Accepted Answer

A)  means that the CPI can either understate or overstate the actual change in cost of living faced by consumers. 
B)  refers to the fact that the CPI measures the change in expenditures necessary to consume a fixed basket of goods, whereas in reality the optimal consumption basket changes as prices change. 
C)  can be corrected partially by periodically updating the fixed basket of goods used in calculations. 
D)  refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations. 
A)  means that the CPI can either understate or overstate the actual change in cost of living faced by consumers. 
B)  refers to the fact that the CPI measures the change in expenditures necessary to consume a fixed basket of goods, whereas in reality the optimal consumption basket changes as prices change. 
C)  can be corrected partially by periodically updating the fixed basket of goods used in calculations. 
D)  refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Question 17

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 18

We could use the term "bandwagon 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 19

Which of the following statements is false?

Accepted Answer

A)  If the price of a good falls, the substitution effect will always induce the consumer to consume at least as much of the good as before the price change. 
B)  All Giffen good are inferior goods. 
C)  As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good. 
D)  As the price of a normal good falls, the income effect will result in an increase in consumption of the good. 
A)  If the price of a good falls, the substitution effect will always induce the consumer to consume at least as much of the good as before the price change. 
B)  All Giffen good are inferior goods. 
C)  As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good. 
D)  As the price of a normal good falls, the income effect will result in an increase in consumption of the good.

Question 20

Consider a market with $Q ^ { d } = 240 - 6 P$ and Qs = 2P. What is the consumer surplus in this market?

Accepted Answer

A)  1,000 
B)  300 
C)  750 
D)  500 
A)  1,000 
B)  300 
C)  750 
D)  500

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that good $x$ is a(n)

The income effect is

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ only increases 1%. We can infer that good $x$ is a(n)

A positively-sloped Engel curve implies a(n)

As the price of a good whose units are measured along the x-axis increases, holding the consumer's income and the price of the other good constant, the budget line will

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

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 $x$ when I < P_x is

Giffen goods probably occur most frequently when the good in question is a

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

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

Which of the following is held constant along an income-consumption curve?

A network externality can be said to exist when

Consumer surplus is defined as

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10. Now suppose that the price rises to $14. What is the change in consumer surplus?

Identify which of the following statements is false. The "substitution bias" of the CPI

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 "bandwagon effect" to describe which of the following situations?

Which of the following statements is false?

Consider a market with $Q ^ { d } = 240 - 6 P$ and Q^s = 2P_. What is the consumer surplus in this market?

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: Applications

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

Suppose when the consumer's income rises by 100%, the consumer's consumption of good xxx falls by 1%. We can infer that good xxx is a(n)

The income effect is

Suppose when the consumer's income rises by 100%, the consumer's consumption of good xxx only increases 1%. We can infer that good xxx is a(n)

A positively-sloped Engel curve implies a(n)

As the price of a good whose units are measured along the x-axis increases, holding the consumer's income and the price of the other good constant, the budget line will

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

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 xxx when I < Px is

Giffen goods probably occur most frequently when the good in question is a

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

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

Which of the following is held constant along an income-consumption curve?

A network externality can be said to exist when

Consumer surplus is defined as

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd. Suppose that the market is initially in equilibrium at a price of $10. Now suppose that the price rises to $14. What is the change in consumer surplus?

Identify which of the following statements is false. The "substitution bias" of the CPI

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 "bandwagon effect" to describe which of the following situations?

Which of the following statements is false?

Consider a market with Qd=240−6PQ ^ { d } = 240 - 6 PQd=240−6P and Qs = 2P. What is the consumer surplus in this market?

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: Applications

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 when the consumer's income rises by 100%, the consumer's consumption of good $x$ falls by 1%. We can infer that good $x$ is a(n)

Suppose when the consumer's income rises by 100%, the consumer's consumption of good $x$ only increases 1%. We can infer that good $x$ is a(n)

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 $x$ 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

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10. Now suppose that the price rises to $14. What is the change in consumer surplus?

Consider a market with $Q ^ { d } = 240 - 6 P$ and Q^s = 2P_. What is the consumer surplus in this market?