Question 1

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1
The equation for this consumer's demand curve for  when I > Px is

Accepted Answer

A)  xd = 0 
B)  xd =  
C)  xd =  -  
D)  xd = 1/2

Question 2

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd.  Suppose that the market is initially in equilibrium at a price of $10.What is the consumer surplus at the original equilibrium price?

Accepted Answer

A)  100. 
B)  150 
C)  200 
D)  250.

Question 3

Compensating variation is

Accepted Answer

A)  the change in income necessary to hold the consumer at the final level of utility as price changes. 
B)  always the area under the demand curve and above the price paid. 
C)  the change in income necessary to restore the consumer to the initial level of utility. 
D)  the difference in the consumer's income between the purchase of the original basket and the new basket at the old prices.

Question 4

Identify which of the following statements is false.The "substitution bias" of the CPI

Accepted Answer

A)  means that the CPI can either understate or overstate the actual change in cost of living faced by consumers. 
B)  refers to the fact that the CPI measures the change in expenditures necessary to consume a fixed basket of goods, whereas in reality the optimal consumption basket changes as prices change. 
C)  can be corrected partially by periodically updating the fixed basket of goods used in calculations. 
D)  refers to the fact that those who construct the CPI are biased away from including certain types of goods in the fixed basket of goods used in their calculations.

Question 5

Leisure can be

Accepted Answer

A)  either a normal good or an inferior good. 
B)  only a normal good. 
C)  considered to be an inferior good when a parallel outward shift of the budget line leads to an increase in leisure . 
D)  considered to be a normal good when a parallel outward shift of the budget line leads to a decrease in leisure.

Question 6

We could use the term "bandwagon effect" to describe which of the following situations?

Accepted Answer

A)  I get great satisfaction from collecting Soviet-era posters because few people have them. 
B)  I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information. 
C)  I purchase more chocolate bars when the price of chocolate bars falls. 
D)  I decide to purchase a good because a politician suggests it.

Question 7

The method for finding the substitution effect of a price change on consumption of good x is to:

Accepted Answer

A)  Find the initial optimal consumption basket before the price change and then find the decomposition basket and measure the change in consumption of the good between the two baskets. 
B)  Find the initial optimal consumption basket before the price change, then find the final optimal consumption basket after the price change and measure the change in consumption of the good between the two baskets. 
C)  Find the final optimal consumption basket after the price change and then find the decomposition basket and measure the change in consumption of the good between the two baskets. 
D)  Find the initial and final optimal consumption baskets, before and after the price change, find the decomposition basket, and add up the total changes between the two optimal baskets and the decomposition basket.

Question 8

Which of the following statements is false?

Accepted Answer

A)  If the price of a good falls, the substitution effect will always induce the consumer to consume at least as much of the good as before the price change. 
B)  All Giffen good are inferior goods. 
C)  As the price of an inferior good increases, the income effect will induce the consumer to consume less of the good. 
D)  As the price of a normal good falls, the income effect will result in an increase in consumption of the good.

Question 9

Identify the truthfulness of the following statements. I.The substitution effect is unambiguous in its direction.
II.Direction of the income effect depends on whether the good is a normal or an inferior good.

Accepted Answer

A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true.

Question 10

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

Accepted Answer

A)  income-consumption curve. 
B)  price-consumption curve. 
C)  demand curve. 
D)  Engel curve.

Question 11

The substitution effect is

Accepted Answer

A)  the change in the amount of the good consumed holding the level of income constant. 
B)  the change in the amount of the good consumed as the price of the good changes holding income constant. 
C)  the change in the amount of the good consumed as the price of the good changes holding utility constant. 
D)  the change in the amount of the good consumed holding relative prices constant and changing the level of income.

Question 12

In order to identify a consumer's demand curve from an optimal choice diagram we

Accepted Answer

A)  change the consumer's income, holding the prices of both goods constant, and identify the baskets the consumer chooses with each income level. 
B)  change the price's of both goods, holding income constant, and identify the baskets the consumer chooses with each price level. 
C)  change the price of one good, holding income and the price of the other good constant, and identify the baskets the consumer chooses with each price level. 
D)  change the price of one good and then change the income level so that the consumer achieves the same level of utility as before the price change and then identify the optimal consumption baskets at each price level.

Question 13

Giffen goods probably occur most frequently when the good in question is a

Accepted Answer

A)  luxury item like jewelry or yachts. 
B)  low-priced item that is insignificant relative to a person's total consumption. 
C)  a staple of a person's consumption pattern or represents a big share of a person's total expenditures. 
D)  technology-related item.

Question 14

Which of the following is held constant along an income-consumption curve?

Accepted Answer

A)  Income. 
B)  Consumption of all goods. 
C)  The price of all goods other than the good of interest. 
D)  The prices of all goods.

Question 15

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd.  Suppose that the market is initially in equilibrium at a price of $10.Now suppose that the price rises to $14.What is the change in consumer surplus?

Accepted Answer

A)  An increase of 38. 
B)  A decrease of 38. 
C)  A decrease of 42. 
D)  A decrease of 36.

Question 16

As the price of a good whose units are measured along the x-axis increases,holding the consumer's income and the price of the other good constant,the budget line will

Accepted Answer

A)  shift inward toward the origin. 
B)  shift outward away from the origin. 
C)  rotate such that the y-intercept stays the same and the x-intercept shifts toward the origin. 
D)  rotate outward away from the origin.

Question 17

Suppose when the consumer's income rises by 100%,the consumer's consumption of good  only increases 1%.We can infer that good  is a(n)

Accepted Answer

A)  normal good. 
B)  inferior good. 
C)  Giffen good. 
D)  marginal good.

Question 18

Under what circumstances is the demand curve downward-sloping?

Accepted Answer

A)  When the good is not a Giffen good. 
B)  When the good is a Giffen good. 
C)  When the good is an inferior good and the income effect outweighs the substitution effect. 
D)  The demand curve is always downward-sloping.

Question 19

The income effect is

Accepted Answer

A)  the change in the amount of the good consumed holding the level of income constant. 
B)  the change in the amount of the good consumed as the price of the good changes holding income constant. 
C)  the change in the amount of the good consumed as the price of the good changes holding utility constant. 
D)  the change in the amount of the good consumed as the consumer's utility changes holding the price of the good constant.

Question 20

Consider a market with  and Qs = 2P. What is the consumer surplus in this market?

Accepted Answer

A)  1,000 
B)  300 
C)  750 
D)  500

Exam 5: The Theory of Demand

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for when I > P_x is

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10.What is the consumer surplus at the original equilibrium price?

Compensating variation is

Identify which of the following statements is false.The "substitution bias" of the CPI

Leisure can be

We could use the term "bandwagon effect" to describe which of the following situations?

The method for finding the substitution effect of a price change on consumption of good x is to:

Which of the following statements is false?

Identify the truthfulness of the following statements. I.The substitution effect is unambiguous in its direction. II.Direction of the income effect depends on whether the good is a normal or an inferior good.

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

The substitution effect is

In order to identify a consumer's demand curve from an optimal choice diagram we

Giffen goods probably occur most frequently when the good in question is a

Which of the following is held constant along an income-consumption curve?

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10.Now suppose that the price rises to $14.What is the change in consumer surplus?

As the price of a good whose units are measured along the x-axis increases,holding the consumer's income and the price of the other good constant,the budget line will

Suppose when the consumer's income rises by 100%,the consumer's consumption of good only increases 1%.We can infer that good is a(n)

Under what circumstances is the demand curve downward-sloping?

The income effect is

Consider a market with and Q^s = 2P_. What is the consumer surplus in this market?

Exam 5: The Theory of Demand

Suppose the consumer's utility function is given by U(x,y) = xy + y where MUx = y MUy = x+1 The equation for this consumer's demand curve for when I > Px is

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd. Suppose that the market is initially in equilibrium at a price of $10.What is the consumer surplus at the original equilibrium price?

Compensating variation is

Identify which of the following statements is false.The "substitution bias" of the CPI

Leisure can be

We could use the term "bandwagon effect" to describe which of the following situations?

The method for finding the substitution effect of a price change on consumption of good x is to:

Which of the following statements is false?

Identify the truthfulness of the following statements. I.The substitution effect is unambiguous in its direction. II.Direction of the income effect depends on whether the good is a normal or an inferior good.

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

The substitution effect is

In order to identify a consumer's demand curve from an optimal choice diagram we

Giffen goods probably occur most frequently when the good in question is a

Which of the following is held constant along an income-consumption curve?

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Qd. Suppose that the market is initially in equilibrium at a price of $10.Now suppose that the price rises to $14.What is the change in consumer surplus?

As the price of a good whose units are measured along the x-axis increases,holding the consumer's income and the price of the other good constant,the budget line will

Suppose when the consumer's income rises by 100%,the consumer's consumption of good only increases 1%.We can infer that good is a(n)

Under what circumstances is the demand curve downward-sloping?

The income effect is

Consider a market with and Qs = 2P. What is the consumer surplus in this market?

Suppose the consumer's utility function is given by U(x,y) = xy + y where MU_x = y MU_y = x+1 The equation for this consumer's demand curve for when I > P_x is

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10.What is the consumer surplus at the original equilibrium price?

Suppose that a consumer's demand curve for a good can be expressed as P = 50 - 4Q^d. Suppose that the market is initially in equilibrium at a price of $10.Now suppose that the price rises to $14.What is the change in consumer surplus?

Consider a market with and Q^s = 2P_. What is the consumer surplus in this market?