When measuring the substitution effect, one uses the change along A) the old indifference curve. B) the new indifference curve. C) either the old or the new indifference curve. D) the budget constraint. ANSWER A
Date: September 9th, 2020
Suppose Lisa spends all of her money on books and coffee. When the price of coffee decreases, the A) substitution effect on coffee is positive, and the income effect on coffee is positive. B) substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. C) substitution effect on coffee is positive, […]
Date: September 9th, 2020
What is the primary difference between the substitution and the income effect of a price change? A) The substitution effect holds income constant and the income effect holds utility constant. B) The substitution effect is always positive and the income effect is always negative. C) The substitution effect holds utility constant and the income effect […]
Date: September 9th, 2020
The Affordable Care Act is intended to reduce the price of health care. A decrease in the price of health care may A) increase the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect. B) decrease the number of doctors office visits if […]
Date: September 9th, 2020
A demand curve for a Giffen good would be A) upward sloping. B) downward sloping. C) horizontal. D) vertical. ANSWER A
Date: September 9th, 2020
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
Date: September 9th, 2020
Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s) = 10g0.9s0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5? A) There will […]
Date: September 9th, 2020
After Joyce and Larry purchased their first house, they made additional home improvements in response to increases in income. After a while, their income rose so much that they could afford a larger home. Once they realized they would be moving, they reduced the amount of home improvements. Their Engel curve for home improvements on […]
Date: September 9th, 2020
As the price of a Giffen good falls, the consumer will A) purchase more units. B) purchase fewer units. C) not change the amount purchased. D) There is not enough information to answer this question. ANSWER B
Date: September 9th, 2020
An individual derives utility from games, g (y-axis), and toy airplanes, a (x-axis), described by the utility function U(g,a) = g0.6a0.4. The price per game is $20 and the price of toy airplanes is $10. Using the slope of the income consumption curve (ICC), determine whether games and toy airplanes are normal or inferior goods […]
Date: September 9th, 2020
