If a good is considered a normal good, the demand curve will shift ________ when income increases because ________. A) right; the income and substitution effects move in the same direction. B) right; the income and substitution effects move in the opposite direction. C) left; the income and substitution effects move in the same direction. […]
In the case of a normal good, A) demand curves always slope downward. B) the income effect and substitution effect are in the same direction. C) the Engel curve slopes upward. D) All of the above. ANSWER D
For an inferior good, if the income effect more than offsets the substitution effect, we call that good A) a Giffen good. B) a normal good. C) an inferior good. D) a neutral good. ANSWER A
When the price of a good changes, the income effect can be found by comparing the equilibrium quantities purchased A) on the old budget line and the new budget line. B) on the original indifference curve when faced with the original prices and when faced with the new prices. C) on the new budget line […]
An inferior good exhibits A) a negative income elasticity. B) a downward sloping Engel curve. C) a decline in the quantity demanded as income rises. D) All of the above. ANSWER D
If consumer income and prices increase by the same percentage, A) the consumer will buy more of both goods. B) the consumer will buy more of both goods if they are both normal goods. C) the consumer will buy less of both goods if they are both inferior goods. D) the consumer’s utility maximizing bundle […]
Ten individuals have $100 and identical preferences for picnics, p, and kayak trips, k, where U(p, k) = k0.5p0.5. The price of picnics is $5 and the price per kayak trip is $ 10. What is the shortage/surplus in the market when the supply of picnics totals 120? A) There is a surplus of 20. […]
If the price-consumption curve is upward sloping when the price of the good measured on the horizontal axis changes, then the demand curve for that good will be upward sloping. Indicate whether the statement is true or false ANSWER False. An upward-sloping price-consumption curve indicates that as the price of the good falls, more […]
A demand curve for a Giffen good would be A) upward sloping. B) downward sloping. C) horizontal. D) vertical. ANSWER A
When deriving an Engel curve, the prices of both goods A) are held constant. B) increase by the same percentage as income. C) decrease by the same percentage as income. D) can either decrease, increase or stay the same. ANSWER A
