Median household income is $50,000 per year. The typical household spends about $125 per year on milk, which has an income elasticity of about 0.07. From this information, we can conclude that A) milk is a luxury. B) milk is a Giffen good. C) the income effect from a change in the price of milk […]
Date: September 9th, 2020
What is the benefit of understanding the income and the substitution effects? A) The income effect might run in the opposite direction of the substitution effect. B) The income effect always runs in the opposite direction of the substitution effect. C) The income and substitution effects just offset each other, which explains a lot. D) […]
Date: September 9th, 2020
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
An individual derives utility from consuming “all other goods,” g, and clean air (measured by the reduction in particulate matter per m3), a, as measured by the utility function U(g,a) = g0.6a0.4. The price of consumer goods equals $20 and the price of clean air (abatement) equals $10. What is the slope of the Engel […]
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
