Deck 5: Individual and Market Demand

Question 1

(Figure: Good Y and Good X VII) At BC₁, the consumer has $40 of income to spend on goods X and Y. What changed the budget constraint from BC₁ to BC₂?

A) An increase in the price of Good X
B) A decrease in the price of Good X
C) A decrease in the price of Good Y
D) In increase in income

Answer 1

B

Question 2

(Figure: Hamburger Meat and Canned Tuna I) 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

Answer 2

B

Question 3

Suppose that there are two goods, X and Y. The utility function is U = XY + 2Y. The price of X is P, and the price of Y is $5. Income is $60. The demand for X as a function of P is X = ____.

A) (30 - P) / P
B) (20 - P) / P
C) (2 - P) / P
D) 2P

Answer 3

A

Question 4

(Figure: Billiards and Water Park Tickets I) 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 5

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

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

Question 6

(Figure: Beef Jerky and Scallops I) According to the figure, the substitution effect associated with the increase in the price of scallops is a movement from ____ to _____ scallops.

A) 6; 5
B) 6; 2
C) 5; 2
D) 5; 6

Question 7

Suppose that there are two goods, X and Y. The utility function is The price of Y is $2 per unit and the price of X is P. The Hicksian demand curve for X for utility equal to 2,000 units is X = ____.

A) 200P^-(1/3)
B) 20P^-(1/3)
C) 200P^(1/3)
D) 20P

Question 8

(Figure: Quantity of Goods Y and X II) 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 9

(Figure: Hourly Wage and Hours of Labor I) Which of the following statements is (are) TRUE? I. At a wage above $18, the income effect dominates the substitution effect.
II) At a wage below $18, the substitution effect dominates the income effect.
III) At a wage above $18, the substitution effect dominates the income effect.
IV) At a wage below $18, the income effect dominates the substitution effect.

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

Question 10

Which of the following statements about Marshallian demand curves is FALSE?

A) They show the relationship between price and quantity demanded, assuming that the consumer's income stays constant.
B) They have an income effect as well as a substitution effect.
C) They have just a substitution effect.
D) They have the property that purchasing power changes when the good's price changes.

Question 11

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 12

(Figure: Good Y and Good X V) 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.
Panel (a) Panel (b)

Using panel (b), good X is a (an) _____ good.

A) necessity
B) luxury
C) inferior
D) Giffen

Question 13

(Figure: Market for DS Video Games I) Assume that Sofia and Elena comprise the entire market of buyers.
Elena's inverse demand function is ____.

A) P = 40 - 5Q
B) Q = 40 - 5P
C) P = 25 - 5Q
D) Q = 25 - 5P

Question 14

(Figure: Good Y and Good X III) 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 15

To derive the Engel curve, which shows the relationship between the quantity of a good consumed and a consumer's income, all else being equal, solve the consumer's:

A) utility-maximization problem with prices of the goods as variables while keeping income constant.
B) utility-maximization problem with income as a variable while keeping the prices of the goods constant.
C) expenditure-minimization problem with prices of the goods as variables while keeping income constant.
D) expenditure-minimization problem with income as a variable while keeping the prices of the goods constant.

Question 16

(Figure: Dog Treats and Milk I) 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 17

(Figure: Quantity of Goods Y and X I) The substitution effect will be largest for indifference curve:

A) U₁.
B) U₂.
C) U₃.
D) U₄.

Question 18

For the Cobb-Douglas utility function:

A) the income and substitution effects are necessarily the same size.
B) the demand for each good is independent of changes in the price of the other good.
C) there is only an income effect, no substitution effect.
D) there is only a substitution effect, no income effect.

Question 19

For the special case of a Giffen good, the partial derivative of quantity demanded with respect to price is _____, and the partial derivative of quantity demanded with respect to income is _____.

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

Question 20

(Figure: Quantity of Good Y and X IV) The price of good Y decreased from $20 to $10. The cross-price elasticity of demand for good X with respect to good Y is ____.

A) positive
B) negative
C) zero
D) infinite

Question 21

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 ≥ $50, and Q_M = 5 - 0.10P if P < $50
B) Q_M = 15 - 0.2P if P ≥ $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 22

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 23

(Figure: Consumers and Quantity of Good X I) 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 24

(Figure: Units of Good Y and Good X I) 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 25

(Figure: Good Y and Good X V) 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.
Panel (a) Panel (b)

Using panel (a), good X is a (an) _____ good.

A) necessity
B) luxury
C) inferior
D) Giffen

Question 26

(Figure: Fishing Charters and Parachute Jumps I) 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.

Question 27

Suppose the price of the normal good X increases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

A) more; an increase
B) more; a decrease
C) less; an increase
D) less; a decrease

Question 28

Joaquin consumes pizza and beer. His utility function is where P is the number of pizzas and B is the number of glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today. The price of one pizza is $10, and the price of beer is $3 per glass. Joaquin is allowed to purchase fractions of a pizza by buying individual slices at the same average price (thus, one quarter of a pizza would cost $2.50). Suppose the price of beer decreases to $2. The total effect is to increase pizza consumption by ____ pizzas and increase beer consumption by ____ beers.

A) 1.38; 0.28
B) 1.12; 0.28
C) 0.54; 1.04
D) 0; 2.5

Question 29

(Figure: Good Y and Good X V) 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.
Panel (a) Panel (b)

Using panel (b), the income elasticity of demand for good X is _____.

A) 1.43
B) -1.43
C) 0.7
D) -0.7

Question 30

(Figure: Good Y and Good X III) 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 31

(Figure: Prune Juice and Apple Juice I) 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 juice and prune juice. Which of the following statement(s) is (are) TRUE? I. At $2 per quart, the consumer buys 3 quarts of apple juice.
II) At $4 per quart, the consumer buys 3 quarts of apple juice.
III) At $1.33 per quart, the consumer buys 6 quarts of apple juice.
IV) At $0.75 per quart, the consumer buys 6 quarts of apple juice.

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

Question 32

(Figure: Good Y and Good X IV) The cross-price elasticity of demand for good X with respect to good Y is _____ in panel (a) and _____ in panel (b).
Panel (a) Panel (b)

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

Question 33

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. The equilibrium price in the computer speaker market is $____.

A) 40
B) 100
C) 300
D) 600

Question 34

(Figure: Batting Gloves and Baseball Hats I) 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 35

(Figure: Good Y and Good X V) 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.
Panel (a) Panel (b)

Using panel (a), the income elasticity of demand for good X is _____.

A) 12
B) 6
C) 1/12
D) 1/6

Question 36

(Figure: Coffee and Ice Cream I) Kemala spends her income on ice cream and coffee, and coffee sells for $1 a cup. If ice cream sells for $1.50 per gallon, Kemala will purchase:

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

Question 37

Joaquin consumes pizza and beer. His utility function is where P is the number of pizzas and B is the number of glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today. The price of one pizza is $10 and the price of beer is $3 per glass. Joaquin is allowed to purchase fractions of a pizza by buying individual slices at the same average price (thus, one quarter of a pizza would cost $2.50). Joaquin's optimal bundle is ____ pizzas and ____ beers.

A) 0.5; 10
B) 1.5; 5
C) 2.5; 4
D) 3; 3

Question 38

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 39

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

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

Question 40

(Figure: Good Y and Good X VI) Which set of points (Good X, Good Y) is consistent with the income expansion path?

A) (0,0), (2,2), (5,3), (7,5), and (8,8)
B) (0,0), (0,4), (0,8), (0,12), and (0,16)
C) (0,0), (4,0), (8,0), (12,0), and (16,0)
D) (0,0), (4,4), (8,8), (12,12), and (16,16)

Question 41

(Figure: Orange Juice and Milk I) According to the above figure and assuming the substitution effect increased milk consumption by one, the income effect of moving from BC₁ to BC₂ is a movement from ____ milk to ____ milk.

A) 3; 6
B) 3; 2
C) 2; 6
D) 2; 4

Question 42

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; decrease; decrease; normal

Question 43

A consumer's bundle includes good X and good Y. If good X is an inferior good, the size of the income effect is smaller than the substitution effect, goods X and Y are substitutes, and the price of good X rises, the consumer will buy ____ of good X and ____ of good Y.

A) more; more
B) more; less
C) less; more
D) less; less

Question 44

To use calculus to decompose the total effect of a price change into substitution and income effects, it is necessary to solve all of the following EXCEPT the consumer's:

A) utility-maximization problem at the original prices.
B) utility-maximization problem at the new prices.
C) expenditure-minimization problem at the new prices and original utility level.
D) expenditure-minimization problem at the original prices and new utility level.

Question 45

(Figure: Tattoos and Football Tickets I) 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 46

(Figure: Good Y and Good X II) Good X and good Y are:

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

Question 47

(Figure: Books and Paintings I) 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.

Question 48

Which of the following statements about a Giffen good is FALSE?

A) It is very rare.
B) Its demand curve slopes upward.
C) The consumer buys a lot of an inferior good, and consumption of the good is very responsive to changes in income.
D) The substitution effect dominates the income effect.

Question 49

(Figure: Quantity of Goods Y and X III) What type of good is good X? I. a normal good
II) an inferior good
III) a Giffen good

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

Question 50

Suppose that a consumer has utility U(X,Y) = 2XY + X and income of $499 to spend on goods X and Y. The initial prices of X and Y are $1 and $2 per unit, respectively. Suppose the price of good X increases to $2 per unit. The total effect on the consumption of goods X and Y is ____ for good X and ____ for good Y.

A) 125; 0
B) -125; 0
C) 0; 125
D) 0; -125

Question 51

(Figure: Beef Jerky and Scallops I) According to the figure, beef jerky is a (an) ____ good.

A) normal
B) inferior
C) Giffen
D) superior

Question 52

(Figure: Dog Treats and Milk II) 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 53

The size and direction of the income effect depend on all of the following EXCEPT:

A) the amount of the good (X) the consumer buys.
B) the change in the quantity of X when purchasing power is transformed (X(P_X, P_Y,I)/I).
C) the change in the consumption of X as the price of X changes, holding utility constant.
D) whether the good is normal or inferior.

Question 54

(Figure: Good Y and Good X VI) Assume that the price of Good X is $100 per unit and the price of Good Y is $100 per unit. When income increases from $1,200 to $1600, Good X is a (an) _____ good.

A) necessity
B) luxury
C) inferior
D) Giffen

Question 55

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

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

Question 56

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 57

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 58

Suppose that there are two goods, X and Y. The utility function is U = X²Y². The price of X is P, and the price of Y is $50. Income is $600. The demand for X as a function of P is X = ____.

A) 300/P
B) 200/P
C) 20/P
D) 2P

Question 59

(Figure: Orange Juice and Milk I) According to the above figure, the substitution effect of moving from BC₁ to BC₂ is a movement from ____ milk to ____ milk.

A) 2; 3
B) 2; 1
C) 2; 6
D) 6; 3

Question 60

(Figure: Market for DS Video Games I) Assume that Sofia and Elena comprise the entire market of buyers.
Sofia's inverse demand function is ____.

A) P = 40 - 5Q
B) Q = 40 - 5P
C) P = 25 - 5Q
D) Q = 25 - 5P

Question 61

Suppose the price of a Giffen good, X, decreases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

A) more; an increase
B) more; a decrease
C) less; an increase
D) less; a decrease

Question 62

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, then Abby will consume ____ times as many units of good Y as she does units of good X.

A) 2
B) 3
C) 4
D) 1/2

Question 63

(Figure: Books and Paintings I) 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 64

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 65

(Figure: Good Y and Good X II) Which of the following statements are TRUE? I. The demand curve for good Y shifted outward.
II) The demand curve for good Y shifted inward.
III) The demand curve for good X shifted inward.
IV) The price of good Y decreased, causing an increase in the quantity demanded of good Y.

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

Question 66

Suppose that Bella's utility function from bananas (B) and chocolate (C) is . Her budget is $15, and the price of chocolate is $3.
Bella's demand for bananas is ____.

A) 15/2p
B) 10/p
C) 2/p
D) 2p

Question 67

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 68

We can use the calculus of the consumer choice model for each of the following EXCEPT:

A) to see how the demand curve shifts when there is a discrete change in income or the price of the other good.
B) to see how the demand curve shifts when tastes for a good change.
C) to see how the supply curve shifts when tastes for a good change.
D) to see the effects of a change in price of the good itself.

Question 69

Suppose the price of the normal good X decreases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

A) more; an increase
B) more; a decrease
C) less; an increase
D) less; a decrease

Question 70

(Figure: Tattoos and Football Tickets I) 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 71

Suppose that there are two goods, X and Y. The utility function is U = XY + 2Y. The price of X is $5, and the price of Y is P. Income is $60. The demand for Y as a function of P is X = ____.

A) 350/P
B) 35/P
C) 20/P
D) 2P

Question 72

Suppose that a consumer has utility U(X,Y) = 2XY + X and income of $499 to spend on goods X and Y. The prices of X and Y are $1 and $2 per unit respectively. The optimal basket of goods is ____X and ____Y.

A) 250; 124.5
B) 200; 150
C) 150; 200
D) 124.5; 250

Question 73

(Figure: Quantity of Goods Y and X II) 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 74

(Figure: Quantity of Good Y and X IV) The price of good Y decreased from $20 to $10. Goods X and Y are considered ____.

A) complements
B) substitutes
C) unrelated goods
D) inferior goods

Question 75

Suppose the demand for good X shifts in. Which of the following statements is (are) possibly TRUE?
I) The price of good X increased.
II) The price of a substitute good decreased.
III) The price of a complement good increased.

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

Question 76

(Figure: Price and Quantity of Vocal Lessons I) Suppose Lizzie and Miranda are the only two customers in the market for voice lessons. Lizzie's demand is Q_M = 40 - 4P, and Miranda'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 77

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 78

Suppose the price of good X, a Giffen good, increases. Which of the following statements are TRUE?
I) The substitution effect of the price increase causes consumers to buy less of good X.
II) The substitution effect of the price increase causes consumers to buy more of good X.
III) The income effect of the price increase causes consumers to buy more of good X.
IV) The income effect of the price increase causes consumers to buy less of good X.

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

Question 79

Suppose that Bella's utility function from bananas (B) and chocolate (C) is . Her budget is $15, and the price of chocolate is $3.
If Bella's budget increases to $20, then bananas are ____ for Bella.

A) a normal good
B) an inferior good
C) a Giffen good
D) a superior good

Question 80

Suppose the price of an inferior good X, that follows the law of demand, decreases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

A) more; an increase
B) more; a decrease
C) less; an increase
D) less; a decrease