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
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
Behavioral economics extends traditional economic models by A) including insights from psychology and human cognition models. B) modeling behavior rather than prices. C) admitting that individuals are irrational. D) admitting that incentives are very important. ANSWER A
Date: September 9th, 2020
Bounded rationality suggests that A) individuals might make “incorrect” decisions because they are unable to consider all possible options. B) individuals would rather have less choice to more choice. C) rational decisions can only be made when choices are restricted. D) individuals are happier when their choices are restricted or “bounded.” ANSWER A
Date: September 9th, 2020
