Deck 4: Individual and Market Demand

Question 1

For a Giffin good, the income effect is

A)greater than the substitution effect.
B)less than the substitution effect.
C)in the same direction of the substitution effect.
D)the same as the substitution effect.

Answer 1

A

Question 2

The substitution effect is

A)always greater than the income effect.
B)always less than the income effect.
C)never greater than the income effect.
D)sometimes less than the income effect.

Answer 2

D

Question 3

An Engel curve

A)always slopes up for an inferior good.
B)always slopes down for an inferior good.
C)may slope up or down for a normal good.
D)does not relate to the normal or inferior good concepts.

Answer 3

B

Question 4

Price elasticity of demand is the

A)percentage change in quantity demanded divided by the percentage change in price.
B)change in price divided by the change in quantity.
C)change in quantity divided by the change in price.
D)percent change in price divided by the change in quantity.

Question 5

The price consumption curve shows us

A)whether we spend more or less on a commodity when its price changes.
B)the changes in nominal income that occur for a price change of a good.
C)the substitution effect of a price change.
D)the total effect of a price change.

Question 6

The point on a linear demand curve where revenue is maximized is where

A)elasticity equals -1.
B)elasticity equals 0.
C)elasticity equals infinity.
D)the price is the highest.

Question 7

For demand function P = 24 - 6Q, demand

A)is elastic at price 16.
B)is elastic at price 12.
C)is elastic at price 2.
D)has unitary elasticity at all points on the function.

Question 8

Suppose the price of public transportation increases. You know that the income effect of this increase is 5, the substitution effect is 10, but you do not know the signs. The total effect of the increase in the price of public transport could be either

A)15 or 5.
B)5 or -5.
C)-15 or 15.
D)5 or -15.

Question 9

The income effect

A)moves in the opposite direction from the substitution effect for an inferior good.
B)moves in the same direction as the substitution effect for an inferior good.
C)relates to increases in nominal rather than real income.
D)is always greater than the substitution effect.

Question 10

One aggregates individual demand curves by adding

A)horizontally.
B)vertically.
C)horizontally and subtracting vertically.
D)vertically and subtracting horizontally.

Question 11

Which of the following is likely to increase the elasticity of demand for a good?

A)A decrease in the availability of close substitutes.
B)A longer period of time.
C)A smaller share of income designated for the good in question.
D)A decrease in the price.

Question 12

Comparing the income effects between salt and housing, the

A)income effect for salt will be greater.
B)income effect for housing will be greater.
C)two income effects will be about the same.
D)two income effects will be in the opposite direction.

Question 13

The income consumption curve

A)always goes through the origin.
B)is always a straight line.
C)has income on the vertical axis.
D)is the same as the Engle curve.

Question 14

If the demand for widgets is inelastic, revenues will ______ if the price of widgets increases.

A)increase
B)fall
C)remain the same
D)one cannot tell what will happen to revenues without specific elasticity numbers

Question 15

The Engel curve for a Giffin good

A)slopes upward.
B)slopes downward.
C)is a straight line.
D)is convex.

Question 16

As one moves southeast on a linear demand curve

A)demand becomes more elastic.
B)demand becomes more inelastic.
C)elasticity stays the same.
D)one cannot tell what happens to elasticity unless the slope of demand is known.

Question 17

The demand curve for a Giffin good

A)slopes upward.
B)slopes downward.
C)is a straight line.
D)is convex.

Question 18

If the price consumption curve of good X, which is on the horizontal axis, slopes downward, we can be sure that consumers spend

A)less money on X even though they buy more of it.
B)the same proportion of their budget on X.
C)more money on X but they get more of X.
D)more money on X but they get less of X.

Question 19

The formula for elasticity is given by

A)^ΔQ/Q/_ΔP/P.
B)(Q/P)(slope).
C)(P/Q)(slope).
D)(Q/P)(1/slope).

Question 20

As one moves southeast on a downward sloping demand curve

A)demand becomes more elastic.
B)demand becomes more inelastic.
C)elasticity stays the same.
D)one cannot tell what happens to elasticity unless the demand curve is linear.

Question 21

A linear demand curve

A)can have constant elasticity if its slope is more than one.
B)will have an ever rising total revenue function.
C)becomes less elastic as price falls.
D)always has a constant elasticity.

Question 22

Which of the following goods are likely to have a positive cross-price elasticity?

A)Butter and margarine
B)Tires and automobiles
C)Pepsi and pizza
D)Peanut butter and jelly

Question 23

A vertical demand curve is

A)perfectly elastic.
B)perfectly inelastic.
C)unit elastic.
D)has elasticity of zero.

Question 24

The substitution effect of a Giffin good is:

A)positive.
B)positive or negative.
C)negative.
D)zero.

Question 25

Which of the following goods is likely to have the lowest elasticity of demand?

A)Milk
B)Diamonds
C)Furniture
D)Automobile

Question 26

Using the point method the price elasticity of demand for the demand curve P = 20 - 2Q, when P = 30 is

A)3.
B)12.
C)0.33.
D)0.08.

Question 27

The income elasticity of a Giffin good

A)is positive.
B)is negative.
C)is zero.
D)cannot be specified without more information.

Question 28

For the demand function P = 24 - 3Q,

A)demand is inelastic at price 16.
B)total revenue is maximized at price 12.
C)unitary elasticity occurs at price 2.
D)demand is elastic at price 12.

Question 29

Which of the following price-quantity data would be part of the demand curve derived from the graph below?

A)Price = 200, quantity = 40
B)Price = 40, quantity = 23
C)Price = 25, quantity = 20
D)Price = 5, quantity = 23

Question 30

A demand curve which has unit elasticity is

A)horizontal.
B)vertical.
C)linear.
D)concave from above.

Question 31

A horizontal demand curve is

A)perfectly elastic.
B)perfectly inelastic.
C)unit elastic.
D)has elasticity of zero.

Question 32

Which statement is definitely true about shelter in the graph below?

A)The demand curve is negatively sloped over the price range shown.
B)It is clearly a normal good throughout the range shown.
C)It is an inferior good throughout the range shown.
D)The income and substitution effects must be shown before any of these statements can be definitely true.

Question 33

Which of the following two goods is likely to have a negative cross-price elasticity of demand?

A)Left and right shoes
B)Margarine and butter
C)Coke and Pepsi
D)Peanut butter and tuna fish

Question 34

A war in the Middle-East increases the price of oil. Suppose that the price hike holds. Over what period of time would you expect the largest change in quantity?

A)1 day
B)1 week
C)1 month
D)1 year

Question 35

For the demand function P = 50 - 5Q,

A)a producer would do well to price at 50.
B)a producer could give away only 20.
C)the total revenue is the same whether the price is 20 or 30.
D)a producer would do well to price at 40.

Question 36

In the graph below, as the consumer moves from indifference curve 1 to 3, his

A)real income is rising and his nominal income is constant.
B)real income is falling, and his nominal income is rising.
C)real income is falling and nominal income is constant.
D)real and nominal income are falling, but he can buy more anyway.

Question 37

Your income rises from $1,000 a year to $10,000 and your purchases of beer increase from 10 to 20. What number below most closely approximates your income elasticity over this range?

A)4
B)0.4
C)2.5
D)1

Question 38

Say the demand curve for cigarettes was given by Q = 164 - 0.38P. When P = 20, a further increase in the price will

A)increase total revenue.
B)decrease total revenue.
C)leave total revenue the same.
D)we can't answer with the information given.

Question 39

The cross-price elasticity of demand for complements is

A)positive.
B)negative.
C)zero.
D)cannot be specified without more information

Question 40

The income elasticity of demand for an inferior good could be

A)positive.
B)negative.
C)zero.
D)any one of these depending on the other factors involved.

Question 41

Refer to the graph below. Assume the consumer has an income of $100, the price of X is $2 and the price of Y is $1. According to the graph, the income effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 42

From the graph given, locate two points on an individual demand curve that you sketch directly below the graph presented

Question 43

What is the cross-price elasticity between beef and vegetables for a strict vegan when the price of vegetables increases?

A)Negative
B)Positive
C)Zero
D)Either zero or negative depending on whether the vegan eats less vegetables.

Question 44

On the graph below sketch the income and substitution effects of a price increase for good X.

Question 45

Which statement is definitely true about shelter in the above below?

A)It is a normal good throughout the range shown.
B)It is an inferior good throughout the range shown.
C)It has a positively sloped section in its demand curve.
D)The income and substitution effects must be shown before any of these statements can be definitely true.

Question 46

If there are no costs in selling mineral water what price should a profit maximizer charge?

Question 47

Refer to the graph below. Assume the consumer has an income of $100, the price of X is $2 and the price of Y is $1. According to the graph below, the total effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 48

Which of the following price-quantity data would not be part of the demand curve derived from the graph below?

A)Price = 0, quantity = 10
B)Price = 10, quantity = 5
C)Price = 4, quantity = 14
D)Price = 2, quantity = 12

Question 49

(Appendix) An income compensated demand curve

A)is steeper than an ordinary demand curve for a normal good.
B)is flatter than an ordinary demand curve for an inferior good.
C)of a Giffin good will be negatively sloped.
D)is described accurately by all of these statements.

Question 50

One of the management groups is arguing for a price reduction as a way to sell more gallons and increase income. Is this a good suggestion?

Question 51

Other things equal, which of the following goods would have the most inelastic price elasticity of demand?

A)A t-shirt from The Gap (a famous American retail store).
B)All red t-shirt sold in the U.S.
C)All shirts, of any color, sold in the U.S.
D)A red t-shirt from Macy's (a large department store).

Question 52

The market demand for a gallon of mineral water is P = 10 - .05Q. The producer wants to produce where the elasticity of demand is unity. What price should she charge and what quantity should be sold to achieve that goal?

Question 53

Say a study reveals that price elasticity of demand for teenage smoking was -0.5. If the government imposed a tax on cigarettes the total expenditure teenagers spend on buying cigarettes would

A)increase.
B)decrease.
C)stay the same.
D)we can't answer with the information given.

Question 54

Assume that the price-consumption curve is horizontal. What additional information does that tell you about the demand for good X and the amount people spend on it?

Question 55

The following two individual demand curves represent the entire market for a commodity. What is the market demand curve for the commodity? Show the market demand in equation and graphical form. (a) P = 60 - 10Q (b) P = 60 - 15Q

Question 56

(Appendix) A demand function that has a unitary elasticity at every point will

A)be a horizontal line.
B)be negatively sloped and a straight line.
C)have a positive slope when price is low.
D)have a declining slope as price falls.

Question 57

Based on your sketch, is the good a normal or inferior good?

Question 58

There has been much discussion over whether marijuana should be legalized. Assume that if it becomes legal the price will be cut in half. Given your text estimate of -1.0 price elasticity for marijuana, what would you expect to be the change in marijuana usage?

A)It will be cut in half.
B)It will not change.
C)It will double.
D)It will increase by 50%.

Question 59

Say you own a kiosk where you sell T-shirts to other students. After conducting a quick survey you find that at the current price the price elasticity of demand for your T-shirts is inelastic. Knowing this, if you wanted to increase the total revenue from selling T-shirts you should

A)increase the price.
B)lower the price.
C)leave the price as it is.
D)sell more T-shirt.

Question 60

Refer to the graph below. Assume the consumer has an income of $100, the price of X is $2 and the price of Y is $1. According to the graph, the substitution effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 61

Why does a toothbrush have an inelastic demand and an automobile have an elastic demand?

Question 62

Explain how it might be possible to have the demand for popcorn in a theater shift left just because you took $10 from Joe and gave it to Paul as they entered the theater. What general principle can we draw from this story?