If workers are in the backward-bending section of their labor supply curves, than an increase in the income tax rate will A) increase the tax revenue and increase the number of hours worked. B) increase the tax revenue and decrease the number of hours worked. C) decrease the tax revenue and increase the number of […]
In response to an increase in the wage rate, the income effect will usually cause a person to A) supply fewer hours of labor. B) supply more hours of labor. C) supply the same hours of labor. D) have a horizontal labor supply curve. ANSWER A
A percentage increase in the overall price level is called A) cost of living. B) inflation. C) Paasche index. D) Fischer index. ANSWER B
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 […]
If the Engel curve for a good is upward sloping, the demand curve for that good must be downward sloping. Indicate whether the statement is true or false ANSWER True . If the Engel curve is upward sloping, the good is normal. As a result, the income effect will reinforce the substitution effect and […]
Which of the following is the geometric mean of 4 and 9? A) 6.5 B) 6 C) 36 D) 3.6 ANSWER B
Using a Paasche 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 D
A true cost-of-living adjustment (COLA) in response to a change in prices would compensate consumers so that they would be able to A) purchase the same bundle they purchased before prices changed. B) achieve the same level of utility they did before prices changed. C) face the same choices they did before prices changed. D) […]
Due to inflation, nominal prices are usually A) equal to real prices. B) smaller than real prices. C) larger than real prices. D) a constant proportion different from real prices. ANSWER C
If a consumer is compensated for the income effect that occurs when the price of a good increases, then his demand curves can never slope upward. Indicate whether the statement is true or false ANSWER True . The demand curve would only include the substitution effect. Even for Giffen goods, dq/dp is negative holding […]