Deck 5: Individual and Market Demand

Question 1

Use the following to answer question:
Figure 5.1
(Figure 5.1) Francis spends his income on fishing charters and jumping out of airplanes. Which of the following statements is TRUE?

A) Fishing charters are an inferior good.
B) An increase in income could cause the optimal consumption bundle to move from point A to point B.
C) Parachute jumps are an inferior good.
D) An increase in the price of parachute jumps could cause the optimal consumption bundle to move from point A to point B.

Answer 1

B

Question 2

Use the following to answer question:
Figure 5.5
(Figure 5.5) Suppose the consumer has $10 to spend on energy drinks and coffee. Which of the following figures represents the consumer's demand curve for energy drinks?

A) panel (a)
B) panel (b)
C) panel (c)
D) panel (d)

Answer 2

B

Question 3

Use the following to answer questions 5-6:
Figure 5.3
(Figure 5.3) Which of the following statements is TRUE?

A) Books are an inferior good at income levels greater than those associated with bundle B.
B) Books are an inferior good at income levels greater than those associated with bundle C.
C) Both books and paintings are normal goods up to the income level corresponding to bundle D.
D) Paintings are an inferior good at income levels higher than those associated with these bundles.

Answer 3

C

Question 4

When Logan earned $1,000 per week, he purchased 5 karate lessons and 40 gallons of gasoline. When his earnings increased to $1,100 per week, he purchased 6 karate lessons and 43 gallons of gasoline. The income elasticity of karate lessons and gasoline are _____ and _____, respectively.

A) 0.50; 1.33
B) 0.10; 1.6
C) 2.00; 0.75
D) 0.85; 0.15

Question 5

The income effect of a price change predicts that a _____ in a good's price will _____ consumer purchasing power, leading to a(n) _____ in consumption of _____ goods.

A) fall; increase; increase; normal
B) fall; decrease; decrease; normal
C) rise; increase; increase; inferior
D) rise; increase; decrease; inferior

Question 6

Suppose that Seth's income increases from $400 to $500 per week, so Seth increases his purchases of movies from 3 to 4. The income elasticity of movies is:

A) 1.33.
B) 0.25.
C) 0.75.
D) 1.00.

Question 7

Use the following to answer question:
Figure 5.12
(Figure 5.12) The substitution effect will be largest for indifference curve:

A) U₁.
B) U₂.
C) U₃.
D) U₄.

Question 8

Julie spends all of her income on gasoline and pizza. Gasoline costs $4 per gallon and pizza costs $2 per slice. When Julie's income is $50 per week, she purchases 5 gallons of gasoline and 15 slices of pizza. When her income rises to $80 per week, she buys 15 gallons of gasoline and 10 slices of pizza. Which of the following statements is true?

A) Both gasoline and pizza are normal goods.
B) Gasoline is a luxury good.
C) Pizza is a luxury good.
D) Both gasoline and pizza are inferior goods.

Question 9

Use the following to answer question:
Figure 5.10
(Figure 5.10) When the price of milk drops, the income effect _____ the quantity of milk consumed from _____.

A) increases; 2 to 6 gallons
B) increases; 4 to 6 gallons
C) decreases; 6 to 2 gallons
D) increases; 2 to 4 gallons

Question 10

Use the following to answer question:
Figure 5.6
(Figure 5.6) Garth spends his income on ice cream and coffee, and coffee sells for $1 a cup. If ice cream sells for $1.50 per gallon, Garth will purchase:

A) 2 gallons.
B) 8 gallons.
C) 1 gallon.
D) 6 gallons.

Question 11

Use the following to answer question:
Figure 5.4
(Figure 5.4) Which of the following statements is TRUE?

A) Fruitcake is an inferior good regardless of income level.
B) Fruitcake is a normal good regardless of income level.
C) Fruitcake is a normal good until income reaches $120, and then it becomes an inferior good.
D) Fruitcake is an inferior good until income reaches $120, and then it becomes a normal good.

Question 12

Use the following to answer question:
Figure 5.8
(Figure 5.8) Refer to Figure 5.8, depicting the consumer's indifference curves and budget constraints. Suppose the consumer has $20 of income to spend on apple and prune juice. Which of the following statement(s) is (are) TRUE?

A) I and II
B) II and III
C) II and IV
D) I

Question 13

Use the following to answer questions 18-19:
Figure 5.11
(Figure 5.11) When the price of football tickets increases, the substitution effect decreases the number of tickets bought from:

A) 4 to 3.
B) 6 to 3.
C) 6 to 4.
D) 20 to 8.

Question 14

Use the following to answer questions 18-19:
Figure 5.11
(Figure 5.11) When the price of football tickets increases, the income effect decreases the number of tickets bought from:

A) 4 to 3.
B) 6 to 3.
C) 6 to 4.
D) 20 to 8.

Question 15

Ryan's Engel curve for potato chips is I = 300C, where I is weekly income and C measures the number of bags of potato chips. Ryan considers potato chips a(n):

A) inferior good.
B) normal good.
C) inferior good at income levels above $60,000.
D) inferior good at income levels above $30,000.

Question 16

Use the following to answer question:
Figure 5.7
(Figure 5.7) Based on the consumer's indifference curves and budget constraints, which of the following demand curves reflects the consumer's demand for water park tickets? Assume the consumer has income of $100.

A) Demand curve A
B) Demand curve B
C) Demand curve C
D) Demand curve D

Question 17

Use the following to answer question:
Figure 5.9
(Figure 5.9) When the price of milk drops, the substitution effect _____ the quantity of milk consumed from _____.

A) increases; 2 to 6 gallons
B) increases; 4 to 6 gallons
C) decreases; 6 to 2 gallons
D) increases; 2 to 4 gallons

Question 18

Use the following to answer question:
Figure 5.2
(Figure 5.2) Hamburger meat is a(n) _____ good and canned tuna is a(n) _____ good.

A) normal; normal
B) inferior; normal
C) inferior; inferior
D) normal; inferior

Question 19

What is the substitution effect of a price change?

A) Consumers will buy more of the good whose relative price has risen and less of the good whose relative price has fallen.
B) When prices fall, consumers will have more purchasing power and buy more of the good whose price has fallen.
C) When prices fall, consumers will have more purchasing power and buy more of all goods.
D) Consumers will consume less of the good whose relative price has risen and more of the good whose relative price has fallen.

Question 20

Use the following to answer questions 5-6:
Figure 5.3
(Figure 5.3) The curve that goes through the points A, B, C, and D is called the:

A) income elasticity curve.
B) optimal consumption path.
C) Engel curve.
D) income expansion path.

Question 21

Use the following to answer questions 24-25:
Figure 5.14
(Figure 5.14) Because of the income effect associated with the decrease in the price of good X, the quantity of good X purchased:

A) increases from 3 to 4.
B) increases from 4 to 5.
C) decreases from 5 to 4.
D) increases from 3 to 5.

Question 22

Use the following to answer questions 36-37:
Figure 5.18
(Figure 5.18) Which of the following statements are TRUE?

A) II and III
B) I, III, and IV
C) III and IV
D) I and IV

Question 23

In 2010, the average household spent $1,178 on telephone services and $333 on nonalcoholic drinks. From this information, we can conclude that:

A) the substitution effect of a price change will be larger for telephone services than for nonalcoholic drinks.
B) an increase in the price of telephone services will cause a larger income effect than a similar increase in the price of nonalcoholic drinks.
C) an increase in the price of nonalcoholic drinks will cause a larger income effect than a similar increase in the price of telephone services.
D) the substitution effect of a price change will be larger for nonalcoholic drinks than for telephone services.

Question 24

Use the following to answer questions 26-28:
Figure 5.15
(Figure 5.15) Because of the income effect associated with the decrease in the price of good X, the quantity of good X purchased:

A) increases from 3 to 5.
B) decreases from 5 to 2.
C) decreases from 3 to 2.
D) decreases from 5 to 3.

Question 25

Use the following to answer question:
Figure 5.17
(Figure 5.17) Given the change in the budget constraint, which of the following statements is TRUE?

A) The demand curve for good Y shifted inward.
B) The demand curve for good X shifted outward.
C) Good X is an inferior good.
D) Good X and good Y are complements.

Question 26

Use the following to answer questions 39-40:
Figure 5.19
(Figure 5.19) Given the change in the budget constraint, the demand curve for _____ shifted _____.

A) good X; inward
B) good Y; outward
C) good X; outward
D) both good X and good Y; outward

Question 27

The substitution effect of a price increase:

A) causes the consumer to purchase less of the good that is now relatively more expensive.
B) causes the consumer to purchase more of the good whose price has risen.
C) can cause the consumer to purchase either more or less of the good.
D) has no effect on the amount purchased of either good.

Question 28

Use the following to answer questions 29-30:
Figure 5.16
(Figure 5.16) The income effect of the price increase causes consumption of baseball hats to:

A) decrease by 1.
B) decrease by 3.
C) decrease by 4.
D) increase by 1.

Question 29

Use the following to answer questions 26-28:
Figure 5.15
(Figure 5.15) Because of the substitution effect associated with the decrease in the price of good X, the quantity of good X purchased:

A) increases from 3 to 5.
B) decreases from 3 to 2.
C) increases from 2 to 3.
D) increases from 2 to 5.

Question 30

A consumer's bundle includes two normal goods, X and Y. According to the income effect, a(n) _____ in the price of good X or a(n) _____ in the price of good Y will cause the consumer to buy less of good X.

A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

Question 31

Suppose the price of good X, a Giffen good, increases. Which of the following statements are TRUE?

A) I and IV
B) II and IV
C) I and III
D) II and III

Question 32

Use the following to answer questions 26-28:
Figure 5.15
(Figure 5.15) What type of good is good X?

A) I and III
B) III
C) II and III
D) I

Question 33

Use the following to answer questions 39-40:
Figure 5.19
(Figure 5.19) The price of good Y _____, increasing the consumption of both good Y and good X, which are _____.

A) increased; complements
B) decreased; substitutes
C) increased; substitutes
D) decreased; complements

Question 34

A consumer's bundle includes the inferior good X and the normal good Y. According to the income effect, a(n) _____ in the price of good X or a(n) _____ in the price of good Y will cause the consumer to buy more of good X.

A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

Question 35

Use the following to answer questions 36-37:
Figure 5.18
(Figure 5.18) Good X and good Y are:

A) perfect complements.
B) Giffen goods.
C) complement goods.
D) substitute goods.

Question 36

Use the following to answer question:
Figure 5.13
(Figure 5.13) Which of the following statements is (are) TRUE?

A) I and II
B) II and III
C) III and IV
D) I

Question 37

Which of the following statements are TRUE?

A) I, II, and IV
B) I and IV
C) II and III
D) III and IV

Question 38

For Sara, ramen noodles are a normal good, however Sean considers ramen noodles to be inferior. If Sara and Sean have the same amount of income:

A) Sean's income effect will be stronger than Sara's income effect.
B) Sean's substitution effect will be stronger than Sara's substitution effect.
C) Sean's demand for ramen noodles will be more price elastic than Sara's.
D) Sean's demand for ramen noodles will be less price elastic than Sara's.

Question 39

Use the following to answer questions 29-30:
Figure 5.16
(Figure 5.16) The substitution effect of the price increase causes consumption of baseball hats to:

A) decrease by 1.
B) decrease by 3.
C) decrease by 4.
D) increase by 1.

Question 40

Use the following to answer questions 24-25:
Figure 5.14
(Figure 5.14) Good X is a(n) _____ good, and good Y is a(n) _____ good.

A) normal; inferior
B) normal; normal
C) inferior; inferior
D) inferior; normal

Question 41

Use the following to answer question:
Figure 5.23
(Figure 5.23) In panel (a), the price of good X is $1.50 per unit and the price of good Y is $3 per unit. In panel (b), the consumer's income increased from $400 to $480.

Question 42

Use the following to answer question:
Figure 5.25
(Figure 5.25) Answer the following questions:

Question 43

There are 10 consumers in the market, each with the following demand curve: Q = 100 - 0.5P. In a graph of the market demand curve, its slope ( $\Delta$ P/ $\Delta$ Q) would equal:

A) -0.50.
B) -0.20.
C) -1.50.
D) -2.25.

Question 44

To calculate the market demand curve from individual demand curves:

A) vertically sum the individual demand curves.
B) horizontally sum the individual demand curves.
C) exponentiate the individual demand curves.
D) add up the prices of the individual demand curves, holding the quantities constant.

Question 45

Use the following to answer question:
Figure 5.21
(Figure 5.21) Suppose Milli and Vanilli are the only two customers in the market for voice lessons. Milli's demand is Q_M = 40 - 4P, and Vanilli's demand is Q_V = 75 - 5P. Which panel represents the market demand for vocal lessons?

A) panel (a)
B) panel (b)
C) panel (c)
D) panel (d)

Question 46

Blaze has $200 to spend on fishing equipment and fast-food burgers. Fishing equipment is priced at $10 per unit and fast-food burgers are priced at $4 per burger.

Question 47

There are 100 consumers in the market for good X, each with a demand curve given by Q = 2/P. What is the market demand curve for good X?

A) Q_M = 0.5P
B) Q_M = 200 - 200P
C) Q_M = 1/50P
D) Q_M = 200/P

Question 48

Eugene has $100 to spend on video blackjack at $1 per game and French fries at $1 per basket.

Question 49

Use the following to answer question:
Figure 5.22
(Figure 5.22) Suppose there are only two consumers in the market for good X. The total quantity demanded in the market at a price of $3 is _____, and the total quantity demanded in the market at a price of $12 is _____.

A) 20; 2
B) 20; 5
C) 6; 3
D) 18; 0

Question 50

Use the following to answer question:
Figure 5.24
(Figure 5.24) Answer the following questions:

Question 51

Sally is one of many consumers in the yellow onion market. Which of the following statements is (are) TRUE?

A) II and III
B) I
C) II
D) III

Question 52

There are only three consumers in the market, and their demand equations are as follows: (1) Q = 5 - 0.5P, (2) Q = 10 - P, and (3) Q = 2 - 0.2P. What is the equation for the market demand curve?

A) P = 30 - 8Q
B) Q = 3.75 - 0.125P
C) Q = 17 - 1.7P
D) Q = 30 - 2P

Question 53

Suppose that good X and good Y are substitutes and good X and good Z are complements. When the price of a good Y _____ or the price of good Z _____, the demand for good X shifts outward.

A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases

Question 54

Suppose the demand for good X shifts in. Which of the following statements is (are) TRUE?

A) I, II, and III
B) II and III
C) I
D) II

Question 55

Suppose the market for a good is composed of 1,000 identical consumers. The market's demand curve is given by Q_M = 150,000 - 25P. What is the equation for an individual consumer's demand curve?

A) Q = 150,000,000 - 25,000P
B) Q = 6,000,000 - 40P
C) Q = 6 - 4P
D) Q = 150 - 0.025

Question 56

Alec has $40 weekly to spend on restaurant meals (priced at $10 per meal) and bowling (priced at $2 per game).

Question 57

Use the following to answer question:
Figure 5.20
(Figure 5.20) The cross-price elasticity of demand for good X with respect to good Y is _____ in panel (a) and _____ in panel (b).

A) zero; negative
B) negative; positive
C) positive; negative
D) negative infinity; positive

Question 58

The market for good X consists of only two consumers; their demand curves are given by Q = 10 - 0.10P and Q = 5 - 0.10P. What is the market demand curve?

A) Q_M = 15 - 0.2P if P $\ge$ $50, and Q_M = 5 - 0.10P if P < $50
B) Q_M = 15 - 0.2P if P $\le$ $50, and Q_M = 10 - 0.10P if P < $50
C) Q_M = 15 - 0.2P if P < $50, and Q_M = 10 - 0.10P if P > $50
D) Q_M = 15 - 0.2P

Question 59

Which of the following statements is TRUE?

A) I only
B) II only
C) I, II, and III
D) I and II

Question 60

The market for macaroni and cheese has only two consumers, David and Wallace. Market demand for macaroni and cheese will tend to be more elastic if:

A) David and Wallace consider macaroni and cheese to be a necessity good rather than a luxury good.
B) David and Wallace consider macaroni and cheese to be an inferior good rather than a normal good.
C) David and Wallace consider macaroni and cheese to be a normal good rather than an inferior good.
D) David and Wallace consider macaroni and cheese to be an economic "bad."

Question 61

Use the following to answer question:
Figure 5.31
(Figure 5.31) Assume that Roscoe and Roland comprise the entire market of buyers.

Question 62

Use the following to answer question:
Figure 5.33
(Figure 5.33) The consumer has an income of $15 and the utility function U = 5X + 5Y. Before the price change the consumer will consume _____units of Y and _____units of X. After the change, she will consume _____units of Y and _____units of X.

Question 63

Use the following to answer question:
Figure 5.27

-(Figure 5.27) Illustrate the substitution effect and income effect associated with the decrease in the price of milk. Label the substitution effect A to A' and the income effect A' to B.

Question 64

Bob's utility function for black (B) and white (W) socks is U = 10B + 10W, where MU_B = 10 and MU_W = 10. Suppose that Bob has $40 to spend on socks. With the price of white socks held constant at $10, graph Bob's demand curve for black socks at $2, $4, $5, $8, $10, and $20.

Question 65

Ricki, CC, and Brett are the only consumers in the market for leather jackets; their inverse demand curves, respectively, are as follows:
P = 200 - 10Q_R
P = 200 - 50Q_CC
P = 200 - 20Q_B
What is the equation for the market demand curve for leather jackets?

Question 66

For the following scenarios, explain the direction of the substitution effect, income effect, and total effect.

Question 67

A consumer has the following utility function: U = 4X + 2Y, where X is the number of slices of plain pizza and Y is the number of slices of pepperoni pizza. Given this person's preferences, what is the demand curve for slices of plain pizza?

Question 68

Abby's utility function is given by U = X²Y². For this utility function, MU_x = 2XY² and MU_y = 2X²Y. If good X costs $10 and good Y costs $5, what share of Abby's utility-maximizing bundle is made up of good X?

Question 69

Use the following to answer question:
Figure 5.30
(Figure 5.30) The price of good Y increased from $1.00 to $5.00.

Question 70

Suppose a consumer spends $100 of income on two goods: buying 4 units of good X (priced at $10) and 3 units of good Y (priced at $20). Both are substitute goods. Using indifference curves and budget constraints, illustrate the effect of a $10 decrease in the price of good Y on the consumer's optimal consumption bundle.

Question 71

Use the following to answer question:
Figure 5.32
(Figure 5.32) Graph the market demand curve for bumper stickers, assuming that Neal and Vince are the only two consumers in the market for bumper stickers. On your graph, show the quantity demanded at $10, $7.50, $5, $2.50, and $0.

Question 72

The utility function for a consumer is U = min{0.25X, Y}. What is the equation for the consumer's income expansion path?

Question 73

Use the following to answer question:
Figure 5.29
(Figure 5.29) The price of good Y decreased from $20 to $10.

Question 74

Use the following to answer question:
Figure 5.28

-(Figure 5.28) Answer the following questions.

Question 75

A consumer's bundle includes good X and good Y. Determine whether the following statements are true, false, or uncertain.

Question 76

Suppose a consumer spends her income on lobster and frozen pizza. Assume that the consumer has an income of $60, the price of lobster is $6, and the price of frozen pizza is $6.

Question 77

Suppose there are 100 consumers in the computer speaker market, each with an identical demand curve given by Q_i = 10 - 0.1P, where P is the price per pair of speakers and Q_i measures the quantity demanded of computer speakers by each person. The market supply for computer speakers is given by Q^S = 20P - 200. What are the equilibrium price and quantity in the computer speaker market?

Question 78

Use the following to answer question:
Figure 5.35
For a constant income, the cross-price elasticity of demand between good X and Y in figure A is _____. In figure B it is _____

Question 79

Use the following to answer question:
Figure 5.26
(Figure 5.26) This graph shows the demand curve for skirts. Suppose the consumer has $500 to spend on skirts and handbags, and the price of handbags remains unchanged at $100. Using budget constraints and indifference curves, placing skirts on the horizontal axis and handbags on the vertical axis, illustrate two of the consumer's optimal consumption bundles of skirts and handbags.

Question 80

Use the following to answer question:
Figure 5.34
(Figure 5.34) For an income of $15, the price of Y falls by _____, leading to a substitution effect of _____and an income effect of _____ .