Deck 5: Some Applications of Consumer Demand, and Welfare Analysis

Question 1

The paradox of crime prevention is partly explained by

A) crime being a superior good
B) crime being an inferior enough good
C) nonconvexity of indifference curves

Answer 1

crime being an inferior enough good

Question 2

The expenditure function identifies the maximum amount of income that we must give a consumer in order to allow the consumer to achieve a predetermined level of utility at given prices.

Answer 2

False

Question 3

A characteristic of demand for a good where, at a given price, a 1% change in the price leads to a less than 1% change in the quantity demanded is called inelastic demand.

Answer 3

True

Question 4

The paradox of crime prevention is the cost of engaging in any activity or the opportunity forgone by choosing that particular activity.

Question 5

A characteristic of demand for a good where, at a given price, a 1% change in the price leads to exactly a 1% change in the quantity demanded is called unitary elastic demand.

Question 6

As Calvin Yoshino purchases more leisure, he devotes _______ time to work.

A) less
B) more
C) a constant amount of

Question 7

Refer to Exhibit 5-1. Which demand curve has elasticity that varies along its length?

A) (a)
B) (b)
C) (c)

Question 8

Refer to Exhibit 5-1. Which demand curve is perfectly elastic?

A) (a)
B) (b)
C) (c)

Question 9

Researchers studying labor supply decisions of New York City cab drivers discovered that the time horizons of the drivers are

A) day-by-day
B) intertemporal
C) multi-year

Question 10

The fact that policies aimed at reducing crime may actually increase it if crime is an inferior enough good and the income effect of the crime prevention policies is big enough is known as the

A) Slutsky paradox
B) opportunity paradox
C) paradox of crime prevention

Question 11

The elasticity of demand measure the percentage change in the price of a good that results from a given percentage change in its demand.

Question 12

The Slutsky equation identifies the minimum amount of income that we must give a consumer in order to allow the consumer to achieve a predetermined level of utility at given prices.

Question 13

Consumer surplus is the difference between what a producer receives for the goods it produces and the cost of producing them.

Question 14

Elastic demand is a characteristic of demand for a good where, at a given price, a 1% change in the price of a good leads to ____________ 1% change in the quantity demanded of that good.

A) a more than
B) a less than
C) exactly a

Question 15

A demand curve that is horizontal and in which a zero quantity will be sold at any price above a given price p while, at price p, any quantity can be sold is called a(n)

A) unitary elastic demand curve
B) perfectly elastic demand curve
C) perfectly inelastic demand curve

Question 16

A curve that represents graphically the relationship between the quantity of a good demanded by a consumer and the price of that good as the price varies is called the market demand curve.

Question 17

A measure of consumer surplus determined by the area under the compensated demand curve is the approximate measure of consumer surplus.

Question 18

Refer to Exhibit 5-1. Which demand curve is perfectly inelastic?

A) (a)
B) (b)
C) (c)

Question 19

Kristen's earnings from a California escort service are known as her

A) honest wage
B) dishonest wage
C) legal wage

Question 20

A perfectly inelastic demand curve is perfectly vertical, representing zero quantity response to a price change.

Question 21

We determine the market demand curve by adding individual demand curves

A) horizontally
B) vertically
C) multiplicatively

Question 22

The Slutsky equation portrays

A) only the substitution effect
B) only the income effect
C) both the income and substitution effects

Question 23

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. It costs $190 to achieve a utility level of 10. Then a tax is placed on raspberries so that their price increases from $5 to $10 per ounce. What is the price-compensating variation?

A) $340
B) $150
C) $260

Question 24

Just as a demand function can be derived from the process of utility _______________, given the consumer's income and the prices, an expenditure function can be derived by a process of income _______________, given the predetermined level of utility for the consumer and the prices.

A) minimization, maximization
B) maximization, maximization
C) maximization, minimization

Question 25

A measure of consumer surplus determined by the area under the compensated demand curve is known as the

A) approximate measure of consumer surplus
B) exact measure of consumer surplus
C) inelastic measure of consumer surplus

Question 26

A measure of how much income must be given to a consumer after a price change to leave the consumer at the same level of utility the consumer had attained before the price change occurred is called

A) opportunity cost
B) price-compensating variation in income
C) the Slutsky equation

Question 27

Describe how society can lower the dishonest wage.

Question 28

An explanation for why people view a loss more importantly than a gain is

A) Prospect Theory
B) Willingness to Pay
C) Convexity of Preferences

Question 29

Describe the difference between a perfectly inelastic demand curve and a perfectly elastic demand curve.

Question 30

Because they are the only ones we can observe by looking at data on prices and quantities, we are forced to work with

A) uncompensated demand function
B) compensated demand functions
C) satiated demand functions

Question 31

The process of deriving the market demand curve is purely hypothetical because

A) one does not know the utility functions of all people in a society
B) all economic curves are purely theoretical and not practical
C) the psychological assumptions are irrational

Question 32

According to the price and income multiplication property of demand, if we multiply all the prices in an economy and the income of its agents by the same factor, then the demand for any given good will

A) not change
B) increase
C) decrease

Question 33

The budget of a consumer will be exhausted because any consumer is ________ satiated and, therefore, will always be able to increase utility by consuming _______.

A) never, less
B) always, less
C) never, more

Question 34

List the three properties of demand functions.

Question 35

What is the difference between the exact measure and the approximate measure of consumer surplus?

Question 36

Jeffrey Bafilo's demand function for economics textbooks is Q = 1,001 - 10p. At a market price of $100 per book, what is Jeffrey's consumer surplus?

A) $100
B) $0.10
C) $0.05

Question 37

The following is Dave's demand schedule for music downloads:

If a firm is selling downloads at $1.00 and then Dave obtains a promotional code that allows him to download for $0.50 each, what is the gain in consumer surplus to Dave?

Question 38

If we represent an agent's preferences by a(n) __________ utility function, then the way we number the agent's indifference curves does not affect the demands made by the agent.

A) ordinary
B) cardinal
C) ordinal

Question 39

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. What is the cost of achieving 20 units of utility?

A) $380
B) $19
C) $20

Question 40

Income elasticity of demand is the percentage change in the

A) demand for a good that results from a 1% change in an agent's income
B) demand for a good that results from a given percentage change in its price
C) hours worked for a given percentage change in the wage