Deck 4: Individual and Market Demand

Question 1

Compared to the marginal rate of substitution at the original optimal consumption point,the marginal rate of substitution at the new optimal consumption point is lower if:

A)the consumer's income increased.
B)the price fell.
C)the price rose.
D)the consumer's income decreased.

Answer 1

the price fell.

Question 2

The substitution effect is the change in consumption due to:

A)a change in relative prices.
B)a change in income.
C)a change in utility.
D)a change in the availability of complements.

Answer 2

a change in relative prices.

Question 3

From which of the following can we derive a consumer's demand curve for a commodity?

A)Isoquants
B)Price-consumption curve
C)Production-possibility frontier
D)Contract curve

Answer 3

Price-consumption curve

Question 4

Which of the following is true at any point along a consumer's demand curve?

A)The consumer's preferences for different goods can be ranked.
B)The consumer's optimality condition is satisfied.
C)The consumer's income increases successively as one moves downward along the demand curve.
D)The marginal rate of substitution is constant.

Question 5

For two goods which are perfect complements,the substitution effect of a price decrease is:

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

Question 6

Assume that as the price of good X rises,the demand for good Z shifts outward.On the basis of this information we can conclude that:

A)good Z is inferior.
B)goods X and Z are complements.
C)goods X and Z are substitutes.
D)good X is an input used in the production of Z.

Question 7

Which of the following is true of a consumer's demand curve?

A)Consumer's income successively decreases up along the demand curve.
B)Tastes and preferences for the good change along the demand curve.
C)The distance from the horizontal axis equals the marginal rate of substitution.
D)The price elasticity of demand is generally greater than one.

Question 8

Which of the following is likely to occur if a consumer's income declines with no change in the price level?

A)The consumer will shift to a lower indifference curve.
B)The consumer will consume fewer amounts of the inferior good.
C)The consumer's real income will increase.
D)The income effect on consumption will be zero.

Question 9

Alex distributes his monthly income of $600 between two goods,movies and food.By spending his entire income on movies,he can enjoy a maximum of 20 movies.On the other hand,by spending his entire income on food he can consume a total of 60 units of food.Assuming that food consumption is measured along the horizontal axis and the consumption of movies is measured on the vertical axis,derive the slope of Alex's budget line.

A)-1
B)-0.5
C)-3
D)-1/3

Question 10

Which of the following is true of the well-being of a consumer as represented by a demand curve?

A)The consumer's well-being decreases with a rightward shift of the demand curve.
B)The consumer's well-being varies along a demand curve.
C)The consumer's well-being remains constant along a demand curve only in case of an inferior good.
D)The consumer's well-being is very low when the demand curve is parallel to the price axis.

Question 11

Alex distributes his monthly income of $600 between two goods,movies,and food.By spending his entire income on movies,he can enjoy a maximum of 20 movies.On the other hand,by spending his entire income on food he can consume a total of 60 units of food.Assume that food consumption is measured along the horizontal axis and the consumption of movies is measured on the vertical axis.What will be the slope of Alex's budget line when the maximum possible movie consumption declines to 15,all other things remaining the same?

A)-0.5
B)-0.25
C)-1
D)-0.47

Question 12

Suppose red onions are on the horizontal axis and white onions on the vertical axis.If both are perfect substitutes with two white onions worth one red onion,and the price of red onions falls from four to three times the price of white onions,the consumer:

A)decreases her consumption of white onions and increases her consumption of red onions.
B)increases her consumption of white onions and decreases her consumption of white onions.
C)moves to a higher indifference curve
D)makes no change in his/her consumption of onions and experiences no income effect as a result of the price change.

Question 13

At every point on a demand curve,the height of the demand curve indicates:

A)the total benefit of the good to the consumer.
B)the minimum price the consumer is willing to pay for the good.
C)the consumer's utility level.
D)the marginal rate of substitution.

Question 14

How does the income effect from the decrease in the price of a good differ from the income effect resulting from an increase in one's income?

A)The former moves the consumer to a higher indifference curve but the latter does not.
B)The latter moves the consumer to a higher indifference curve but the former does not.
C)With the price change the consumer is on a higher indifference curve but on a lower slope relative to the increase in income.
D)There is no difference between the two.

Question 15

Assume that the price of gasoline falls.Conceptually,if we wish to isolate the substitution effect of the price change we must:

A)place the consumer at a new indifference curve with new relative prices.
B)place the consumer on the original indifference curve with the original relative prices.
C)place the consumer on the original indifference curve with the new relative prices.
D)place the consumer at a new indifference curve with the original relative prices.

Question 16

The price-consumption curve traces the optimal market baskets for:

A)different income levels.
B)different prices of the good.
C)different consumers.
D)different years.

Question 17

The _____ depicts the change in a consumer's real purchasing power brought about by a change in the price of a good.

A)marginal rate of substitution
B)indifference curve
C)budget line
D)income effect

Question 18

The substitution effect of a price decrease:

A)allows the consumer to obtain a higher level of well-being.
B)reflects an increase in real income.
C)is a movement along the indifference curve to consume more of the lower priced good and less of the higher priced good.
D)is a shift of the indifference curve indicating higher consumption of both the goods.

Question 19

Alex distributes his monthly income of $600 between two goods,movies and food.By spending his entire income on movies,he can enjoy a maximum of 20 movies.On the other hand,by spending his entire income on food he can consume a total of 60 units of food.Assume that food consumption is measured along the horizontal axis and the consumption of movies is measured on the vertical axis.Calculate the slope of Alex's budget line when the price of food increases to $20 while the price of movie remains unchanged.

A)-2/3
B)- 1.5
C)-2
D)-3/4

Question 20

In an effort to deter alcohol consumption by youths,raising the legal age for alcohol consumption causes a _____ the demand curve for alcohol,while raising the federal
Per unit tax on alcohol would cause a _____ the demand curve.

A)movement along;leftward shift of
B)rightward shift of;movement along
C)leftward shift of;movement along
D)movement along;rightward shift of

Question 21

Which of the following is true of inferior goods?

A)They are typically cheaper compared to other goods.
B)They usually do not have complements.
C)They are narrowly defined goods facing higher-quality substitutes.
D)They are broadly defined goods facing higher-quality substitutes.

Question 22

A consumer considers apples and oranges to be perfect substitutes,one for one.If apples currently cost $5 per unit and oranges $6 per unit,and if the price of apples increases to $9 per unit:

A)the income effect of the change in demand for apples will be bigger than the substitution effect.
B)there will be no change in demand for oranges.
C)the entire change in demand for apples will be due to the substitution effect.
D)one-quarter of the change in demand for apples will be due to the income effect.

Question 23

The income effect of a price change:

A)is always larger than the substitution effect in the inferior good case.
B)produces a backward-bending income-consumption curve.
C)reinforces the substitution effect in the normal good case.
D)is always positive.

Question 24

The substitution effect of a price change:

A)will always offset the income effect.
B)will always result in the consumer buying less of a good at a higher price.
C)dominates the income effect in the inferior good case.
D)will always be lower than the income effect of the price change.

Question 25

A case where a consumer buys less of a good when its price falls:

A)cannot occur if the indifference curves are convex to the origin.
B)is an example of a Giffen good and will produce an upward-sloping market demand curve.
C)gives rise to a positively sloped price-consumption curve.
D)refers to an inferior good with a substitution effect that dominates the income effect.

Question 26

Which of the following is true of an excise tax?

A)It has an income and a substitution effect.
B)It only has an income effect.
C)It only has a substitution effect.
D)The income and substitution effects work in opposite directions in case of an excise tax.

Question 27

Assume that the excise tax rate on Good Y,an inferior good,is reduced.What would be the total effect of this tax reduction on an individual's consumption?

A)The individual's consumption will remain fixed.
B)The individual's consumption of good Y can either increase or decrease.
C)The individual's consumption will increase exponentially.
D)The individual's consumption will increase at a constant rate.

Question 28

Which of the following is true of a Giffen good?

A)It is a special case of an inferior good where the income effect is greater than the substitution effect and runs counter to it.
B)It is similar to an inferior good,though the income effect is positive and greater than the substitution effect.
C)It is similar to an inferior good,though the income effect is not as large for the Giffen good as it is for the inferior good.
D)It is mostly prevalent in developing economies.

Question 29

Which of the following statements is true?

A)Some inferior goods are normal goods.
B)Some Giffen goods are inferior goods but all inferior goods are Giffen goods.
C)All Giffen goods are inferior goods but all inferior goods are not Giffen goods.
D)Some normal goods are inferior goods.

Question 30

For the average consumer,the combination of an excise tax and a tax rebate:

A)increases consumption of the taxed good but lowers welfare.
B)increases consumption of the taxed good and raises welfare.
C)decreases consumption of the taxed good and lowers welfare.
D)decreases consumption of the taxed good but raises welfare.

Question 31

Assume that peanut butter is an inferior good.Which of the following best describes the income and substitution effects as the price of peanut butter rises?

A)The substitution effect leads the consumer to buy more peanut butter while the income effect would cause the consumer to purchase less.
B)Both the income and substitution effects would cause the consumer to purchase less peanut butter,although the substitution effect is larger.
C)Both the substitution and income effects would cause the consumer to purchase more peanut butter.
D)The substitution effect causes the consumer to buy less peanut butter while the income effect causes the consumer to purchase more.

Question 32

The substitution effect causes more consumption of a good at a lower price.When does this statement hold true?

A)This statement is true only for Giffen goods.
B)This statement is sometimes true for inferior goods,but never for normal goods.
C)This statement is always true for normal goods,but never for inferior goods.
D)This statement is always true regardless of the type of good.

Question 33

Suppose the government levies a tax on sugar at the rate of $0.50 per pound.Then the government returns the tax revenues to a family in the form of a cash grant equivalent to the average tax paid per family.If the family's cash refund just equals the total amount of tax they paid on sugar,which of the following statements would be true?

A)The family would consume less sugar and be better off.
B)The family would consume the same amount of sugar and be worse off.
C)The family would consume less sugar and be worse off.
D)The family would consume less sugar but their well-being would remain unchanged.

Question 34

In case of a normal good,the income and substitution effects:

A)always work together and both tend to make the demand curve downward sloping.
B)always work in the opposite direction to one another.
C)just offset each other.
D)work together,both tending to make the demand curve upward sloping.

Question 35

For normal goods,the demand curve is:

A)always upward sloping.
B)always downward sloping.
C)upward sloping only if the income effect is larger than the substitution effect.
D)downward sloping only if the substitution effect is larger than the income effect.

Question 36

When the substitution effect of a price change that is positive is greater than the income effect that is negative:

A)the good is an inferior good.
B)the good is a Giffen good.
C)the good is a normal good.
D)the good has no substitute.

Question 37

A demand curve will have a positive slope when:

A)the good is an inferior good.
B)the income effect of a price change outweighs the substitution effect.
C)there are no substitutes for the good.
D)the good can be consumed only with some other good.

Question 38

The difference between an inferior good and a Giffen good is that:

A)the substitution effect of a price increase raises consumption for a Giffen good but decreases consumption of an inferior good.
B)the income effect is larger than the substitution effect for a Giffen good but is smaller than the substitution effect for the inferior good.
C)the income effect is smaller than the substitution effect for a Giffen good but is larger than the substitution effect for the inferior good.
D)a Giffen good is a special case of a normal good and is therefore quite different from an inferior good.

Question 39

Which of the following must be true for a Giffen good?

A)The good must be inferior and the income effect must be larger than the substitution effect.
B)The good must be inferior and the substitution effect must be larger than the income effect.
C)Both the income and the substitution effect of a price rise will be positive.
D)Both the income and the substitution effect of a price rise will be negative.

Question 40

The combination of an excise tax and a tax rebate of equal size:

A)always raises consumer welfare.
B)necessarily harms the consumer.
C)keeps the consumer surplus unchanged.
D)does not lead to any deadweight loss.

Question 41

A consumer is willing to pay a maximum of $5 for the first pretzel,$4 for the second pretzel,$3 for the third pretzel,$2 for the fourth pretzel,$1 for the fifth pretzel,and nothing for the sixth pretzel.If the price per unit of pretzel is $2,calculate the total benefit of the consumer.

A)$6
B)$14
C)$5
D)$8

Question 42

At the price of $3,consumers A,B,C,and D demand 10 units,12 units,14 units,and 8 units of commodity A respectively.Calculate the market demand for commodity A at $3 assuming that A,B,C,and D are the only four consumers of this product.

A)44 units
B)12 units
C)960 units
D)36 units

Question 43

A consumer is willing to pay a maximum of $5 for the first pretzel,$4 for the second pretzel,$3 for the third pretzel,$2 for the fourth pretzel,$1 for the fifth pretzel and nothing for the sixth pretzel.If the price per unit of pretzel is $2,calculate the net benefit to the consumer.

A)$6
B)$14
C)$5
D)$8

Question 44

Suppose the demand for lattes can be estimated using the equation Q_D=9 - P,if the price is $3 per latte,how much is the consumer surplus?

A)$9
B)$12
C)$15
D)$18

Question 45

A consumer currently purchases a good at a price such that her net benefit is positive.Her preference then changes and she now values the good more than before.
If the market price remains unchanged,which of the following statements about her consumer surplus would be true?

A)Her consumer surplus would also remain the same.
B)Her consumer surplus would decrease.
C)Her consumer surplus would increase.
D)Her consumer surplus could increase or decrease depending on her demand elasticity.

Question 46

Which of the following is true of a market demand curve?

A)The market demand curve will always slope upward when the good in question is a normal good.
B)When the individual demand curves slope downward,the market demand curve also slopes downward.
C)The vertical summation of the individual demand curves gives the market demand curve.
D)The market demand curve is typically unaffected by the factors that affect an individual demand curve.

Question 47

If there are only two goods,coffee and donuts,and coffee is an inferior good for a consumer,then:

A)the consumer does not value an extra unit of coffee in terms of donuts.
B)a price increase for coffee leads to a higher level of well-being.
C)donuts cannot be an inferior good.
D)donuts can be an inferior good but not a Giffen good.

Question 48

If the costs of production increase,consumer surplus will:

A)increase.
B)decrease.
C)remain the same.
D)increase initially,then decrease.

Question 49

For the same fall in price,the increase in consumer surplus is greater if:

A)the good is a Giffen good rather than a normal good.
B)the good is normal rather than an inferior good.
C)the good is an inferior good rather than a normal good.
D)the good is a Giffen good rather than an inferior good.

Question 50

Consider a commodity that is being demanded by only two individuals,A and B.If the demand curves of these two individuals is estimated by the following equations: Q¹ = 12 - P and Q² = 14 - 1.5P,the market demand curve will be:

A)Q = 12 - 1.5P
B)Q = 26 - 2.5P
C)Q = 13 - 1.25P
D)Q = 14 - 1.5P

Question 51

Suppose the total benefit eight people enjoyed from consuming one cookie each was $8 + $6 + $6 + $5 + $4 + $3 + $3 +$1.If the price of a cookie was $1,what was the consumer surplus in this market?

A)$8
B)$28
C)$36
D)$37

Question 52

Which of the following is a means of measuring consumer surplus?

A)Measuring the area above the supply curve and below the demand curve
B)Measuring the area above the price and below the demand curve
C)Measuring the horizontal distance between indifference curves
D)Measuring the area between the price and the supply curve

Question 53

Ceteris paribus,when the price of a normal good increases,consumer surplus:

A)decreases.
B)increases.
C)does not change.
D)may increase,decrease,or remain the same.

Question 54

Assume that a market demand curve is constructed from twenty identical individual demand curves.Assume also that at a price of $10,the elasticity of individual demand is 0.5.Then,at this price,the elasticity of the market demand curve derived from these individual demand curves must be:

A)5
B)any value more than 5.0.
C)any value less than 5.0.
D)0.5.

Question 55

Assume that a market demand curve is constructed from one hundred identical individual demand curves.Assume also that at a price of $4,the elasticity of individual demand is 0.6.Then the elasticity of the market demand curve derived from these individual demand curves must be:

A)0.6.
B)any value more than 0.6.
C)any value less than 0.6.
D)60.

Question 56

A market demand curve for a commodity may be obtained by:

A)dividing the total quantity demanded by all consumers by the price level.
B)dividing the total price paid by the consumers by the number of consumers.
C)adding the prices along individual demand curves for given quantities.
D)adding the quantities along individual demand curves for given prices.

Question 57

Assume that the market demand curve for a good is constructed from a hundred identical individual demand curves.Using the same scale on the graph,the slope of the market demand curve will be _____ and its price elasticity _____ that of the individual demand curves.

A)steeper;equal to
B)steeper;more than
C)flatter;equal to
D)flatter;more than

Question 58

Suppose the total consumer surplus enjoyed by eight people from consuming one hamburger each was $9 + $8 + $7 + $7 + $7 + $6 + $6 + $5.If the price of hamburgers was $2 each,what was the total benefit enjoyed by these consumers?

A)$39
B)$45
C)$55
D)$71

Question 59

Which of the following is true of a market demand curve?

A)It might slope upward if the typical consumer has an upward-sloping individual demand curve.
B)It can never slope upward.
C)It will slope upward if at least one consumer has an upward-sloping individual demand curve.
D)It will slope upward if individual demand curves are inelastic.

Question 60

Which of the following statements provides the best example of consumer surplus?

A)"Drinking that bottle of soda increased my happiness by $10."
B)"John gave me $5 for the watermelon even though it cost me only $2."
C)"I paid $20 for this shirt for which I would have paid up to $40."
D)"I refuse to pay $30 for their steak dinner;it's highly overpriced."

Question 61

Isabelle consumes both peaches and bananas.After the price of bananas increased by 20%,Isabelle's consumption of bananas decreased by half.If bananas are on the horizontal axis and peaches on the vertical axis,we can conclude from this information that Isabelle's price consumption curve for peaches and bananas will be:

A)positively sloped.
B)negatively sloped.
C)horizontal.
D)U-shaped.

Question 62

If the price-consumption curve for X is entirely downward sloping,it implies:

A)the price elasticity of demand for X is greater than one.
B)the price elasticity of demand for X is less than one.
C)X is an inferior good.
D)the price elasticity of demand for X is equal to one.

Question 63

The bandwagon effect causes the market demand to become:

A)relatively more elastic.
B)relatively less elastic.
C)perfectly inelastic.
D)unit elastic.

Question 64

Assume that the quantity of steak is plotted on the horizontal axis and all other goods are plotted on the vertical axis.For the range in which the price-consumption curve is downward sloping,the price elasticity of demand for steak:

A)is elastic.
B)is inelastic.
C)is unit-elastic.
D)cannot be determined without additional information.

Question 65

If the price-consumption curve is U-shaped then the demand for the commodity is:

A)perfectly inelastic.
B)relatively inelastic.
C)elastic at high prices and inelastic at low prices.
D)inelastic at high prices and elastic at low prices.

Question 66

Suppose hamburgers are on the horizontal axis and all other goods on the vertical axis.John noticed that since the price of hamburgers has increased,the total amount he spends on hamburgers each month increased.Given this information we can conclude that John's price-consumption curve for hamburgers and all other goods is:

A)positively sloped.
B)negatively sloped.
C)horizontal.
D)U-shaped.

Question 67

Which of the following is most likely to cause a snob effect?

A)A jet ski
B)A fax machine
C)An original Van Gogh painting
D)An Apple iPhone

Question 68

If the price-consumption curve is downward sloping,then a consumer's total expenditure on the good:

A)will become negative as price falls.
B)will increase as price falls.
C)will remain unaffected by changes in the price level.
D)will reduce to zero as price falls.

Question 69

The indifference curve approach to measuring consumer surplus will yield the same answer as the approach using areas under the demand curve if:

A)the substitution effect of a price change is zero.
B)the substitution effect of a price change is larger than the income effect.
C)the income effect of a price change is larger than the substitution effect.
D)the income effect of a price change is zero.

Question 70

Suppose we measure good X on the horizontal axis and other goods on the vertical axis.When the price-consumption curve for good X is:

A)upward-sloping,total expenditure on the good is increasing as the price falls.
B)downward-sloping,total expenditure on other goods is increasing as the price falls.
C)upward-sloping,total expenditure on the good is decreasing as the price falls.
D)upward-sloping,total expenditure on other goods is decreasing as the price falls.

Question 71

A negative network externality is caused by the:

A)bandwagon effect.
B)snob effect.
C)herd effect.
D)fad effect.

Question 72

If the price-consumption curve is horizontal,then demand elasticity:

A)must be negative.
B)must be between 0 and 0.5.
C)is greater than 1.
D)is equal to 1.

Question 73

Which of the following describes the bandwagon effect?

A)Sarah bought a new diamond jewelry set to wear at her sister's wedding.
B)Bob and Harris bought new running shoes from Nike after their friends at the health club started using them.
C)Allen decided to quit drinking to save more money for his new car.
D)Bill gifted his friend a home theater system at her wedding.

Question 74

If the price-consumption curve is upward sloping,then demand elasticity:

A)may be greater than 1.0.
B)must be less than 1.0.
C)equals 1.0
D)must be between 0.5 and 1.5.

Question 75

Consumer surplus can be depicted as the vertical distance between indifference curves,provided:

A)the substitution effect is positive.
B)the substitution effect is zero.
C)the income effect is positive.
D)the income effect is zero.

Question 76

If an individual's demand curve for apples is a downward sloping straight line,the price consumption curve will be:

A)downward sloping.
B)horizontal.
C)u-shaped.
D)upward sloping.

Question 77

Assume that the quantity of film is plotted on the horizontal axis and all other goods plotted on the vertical axis.For the range in which the price-consumption curve is upward sloping,the price elasticity of demand for film:

A)is elastic.
B)is inelastic.
C)is unit-elastic.
D)cannot be determined without additional information.

Question 78

Troy likes attending Major League Baseball games and going to concerts.Following a 10% increase in the price of tickets to Major League Baseball (MLb.games,Troy's attendance at these games fell by 10%.If tickets to MLB games are on the horizontal axis and tickets to concerts on the vertical axis,using the information above,we can conclude that Troy's price-consumption curve between tickets to MLB games and tickets to concerts is:

A)positively sloped.
B)negatively sloped.
C)horizontal.
D)U-shaped.

Question 79

If the price-consumption curve for X is upward-sloping,we can say that:

A)the price elasticity of demand for X is greater than one.
B)the price elasticity of demand for X is less than one.
C)X is an inferior good.
D)the price elasticity of demand for X is equal to one.

Question 80

A network effect exists when an individual consumer's demand for a good is affected by other individuals':

A)incomes.
B)purchases.
C)preferences.
D)consumer surplus.