Question 1

If $x$ is an inferior good and the price of $x$ rises

Accepted Answer

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

Question 2

An Engel curve for good $x$ describes

Accepted Answer

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

Question 3

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 4

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

Accepted Answer

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

Question 5

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 6

Suppose the consumer's utility function is given by $U ( x , y ) = \sqrt { x y }$ where $M U _ { x } = \frac { \sqrt { y } } { 2 \sqrt { x } } \quad M U _ { y } = \frac { \sqrt { x } } { 2 \sqrt { y } }$ The equation for this consumer's demand curve for $x$ is

Accepted Answer

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

Question 7

Identify the truthfulness of the following statements. 
I. The substitution effect is unambiguous in its direction.
II) Direction of the income effect depends on whether the good is a normal or an inferior good.

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 8

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

Accepted Answer

A)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$U = \bar { U }$ where$\bar { U }$ is the initial level of utility. 
B)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$P _ { x } X + P _ { y } Y = I$ 
C)  $P _ { x } X + P _ { y } Y = I$ ;$U = \bar { U }$ where$\bar { U }$ is the initial level of utility. 
D)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$U = \bar { U }$ where$\bar { U }$ is the final level of utility. 
A)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$U = \bar { U }$ where$\bar { U }$ is the initial level of utility. 
B)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$P _ { x } X + P _ { y } Y = I$ 
C)  $P _ { x } X + P _ { y } Y = I$ ;$U = \bar { U }$ where$\bar { U }$ is the initial level of utility. 
D)  $M U _ { x } / M U _ { y } = P _ { x } / P _ { y }$ ;$U = \bar { U }$ where$\bar { U }$ is the final level of utility.

Question 9

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 10

The substitution effect associated with a change in price describes

Accepted Answer

A)  the change in the level of consumption as a result of the consumer's change in utility, holding price constant. 
B)  the change in the level of consumption, holding utility constant. 
C)  the change in relative purchasing power. 
D)  both a) and c) are correct. 
A)  the change in the level of consumption as a result of the consumer's change in utility, holding price constant. 
B)  the change in the level of consumption, holding utility constant. 
C)  the change in relative purchasing power. 
D)  both a) and c) are correct.

Question 11

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 12

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 13

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 14

Leisure can be

Accepted Answer

A)  either a normal good or an inferior good. 
B)  only a normal good. 
C)  considered to be an inferior good when a parallel outward shift of the budget line leads to an increase in leisure . 
D)  considered to be a normal good when a parallel outward shift of the budget line leads to a decrease in leisure. 
A)  either a normal good or an inferior good. 
B)  only a normal good. 
C)  considered to be an inferior good when a parallel outward shift of the budget line leads to an increase in leisure . 
D)  considered to be a normal good when a parallel outward shift of the budget line leads to a decrease in leisure.

Question 15

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.

Question 16

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.

Question 17

Under what circumstances is the demand curve downward-sloping?

Accepted Answer

A)  When the good is not a Giffen good. 
B)  When the good is a Giffen good. 
C)  When the good is an inferior good and the income effect outweighs the substitution effect. 
D)  The demand curve is always downward-sloping. 
A)  When the good is not a Giffen good. 
B)  When the good is a Giffen good. 
C)  When the good is an inferior good and the income effect outweighs the substitution effect. 
D)  The demand curve is always downward-sloping.

Question 18

If $x$ is a normal good and the price of $x$ falls

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

Accepted Answer

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

If $x$ is an inferior good and the price of $x$ rises

An Engel curve for good $x$ describes

In this chapter, the term positive network externality describes

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

The concept of compensating variation means

Suppose the consumer's utility function is given by $U ( x , y ) = \sqrt { x y }$ where $M U _ { x } = \frac { \sqrt { y } } { 2 \sqrt { x } } \quad M U _ { y } = \frac { \sqrt { x } } { 2 \sqrt { y } }$ The equation for this consumer's demand curve for $x$ is

Identify the truthfulness of the following statements. I. The substitution effect is unambiguous in its direction. II) Direction of the income effect depends on whether the good is a normal or an inferior good.

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

A negatively-sloped Engel curve implies a(n)

The substitution effect associated with a change in price describes

The concept of equivalent variation means

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

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

Leisure can be

We can derive a market demand curve for an item by

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

Under what circumstances is the demand curve downward-sloping?

If $x$ is a normal good and the price of $x$ falls

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

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

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

If xxx is an inferior good and the price of xxx rises

An Engel curve for good xxx describes

In this chapter, the term positive network externality describes

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

The concept of compensating variation means

Identify the truthfulness of the following statements. I. The substitution effect is unambiguous in its direction. II) Direction of the income effect depends on whether the good is a normal or an inferior good.

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

A negatively-sloped Engel curve implies a(n)

The substitution effect associated with a change in price describes

The concept of equivalent variation means

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

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

Leisure can be

We can derive a market demand curve for an item by

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

Under what circumstances is the demand curve downward-sloping?

If xxx is a normal good and the price of xxx falls

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

On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

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

If $x$ is an inferior good and the price of $x$ rises

An Engel curve for good $x$ describes

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

If $x$ is a normal good and the price of $x$ falls

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