When the price of a good changes, the substitution 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 […]
Date: September 9th, 2020
The substitution effect can be measured holding ________ constant. A) income B) utility C) the price of one good D) the price of all goods ANSWER B
Date: September 9th, 2020
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. […]
Date: September 9th, 2020
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
Date: September 9th, 2020
Sandy derives utility from consuming “all other goods,” g, and clean air (measured by particulate matter removed per m3), a, as measured by the utility function U(g,a) = g0.6a0.4. The price of “all other goods” is $20 and the price of clean air (abatement) equals $10. Brian is the only other consumer in the market […]
Date: September 9th, 2020
Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is A) 0. B) 1. C) -1. D) There is not enough information to determine the income elasticity of demand for x. ANSWER A
Date: September 9th, 2020
A movement upward along an upward sloping Engel curve corresponds to A) upward sloping indifference curves. B) crossing indifference curves. C) a rotation in the budget constraint. D) a parallel shift in the budget constraint. ANSWER D
Date: September 9th, 2020
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
Date: September 9th, 2020
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 […]
Date: September 9th, 2020
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. […]
Date: September 9th, 2020
