If Bobby thinks that leisure is an inferior good, then his labor supply curve A) is backward bending. B) is always negatively sloped. C) is always positively sloped. D) does not exist. ANSWER C
Date: September 9th, 2020
Suppose the typical consumer only purchases food and clothing, and her utility can be expressed as U=F*C. Currently, food costs $5 per unit and clothing costs $2 per unit. Her income is $70. If the price of food increases to $6, compare the resulting Laspeyres price index with a true cost of living index. What […]
Date: September 9th, 2020
Newspaper accounts of the U.S. labor market often point out that many people are working more hours than their parents did. What might explain this phenomenon? A) the substitution effect B) the endowment effect C) bounded rationality D) the income effect ANSWER A
Date: September 9th, 2020
The amount of money one would have to take from a consumer to harm her by as much as the price increase is called A) compensating variation. B) structured settlement. C) equivalent variation. D) consumer surplus. ANSWER C
Date: September 9th, 2020
Employing a fixed-weight index like the Consumer Price Index to adjust a person’s salary in response to inflation will overcompensate this person because doing so will allow this person to A) buy the same bundle of goods as he did before the inflation. B) achieve a higher level of utility than he did before the […]
Date: September 9th, 2020
Using a Laspeyres index to calculate the Consumer Price Index (CPI) A) weights quantities with current prices. B) weights prices with base-year quantities. C) weights quantities with base-year prices. D) weights prices with current year quantities. ANSWER B
Date: September 9th, 2020
What is one way to adjust the CPI for substitution bias? A) Use the Paasche index. B) Use the Laspeyres index. C) Multiply the Paasche Index and the Laspeyres index. D) Take the geometric mean of the Paasche index and the Laspeyres index. ANSWER A
Date: September 9th, 2020
A good may be inferior at some income levels and normal at others. Indicate whether the statement is true or false ANSWER True . A consumer may demand more of the good at low income levels and less of the good at higher income levels. Hamburger or macaroni and cheese dinners may be examples […]
Date: September 9th, 2020
A Consumer Price Index (CPI) adjustment overcompensates for inflation because it ignores A) the income effect when relative prices change. B) the substitution effect when relative prices change. C) that some goods are inferior. D) that the substitution effect may offset the income effect. ANSWER B
Date: September 9th, 2020
Before an uneven rise in prices Allan consumed 5 bread and 6 juice. After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice. Does the government payment represent a true cost-of-living adjustment (COLA)? A) Yes, if the two consumption bundles lie on the same indifference […]
Date: September 9th, 2020
