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
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
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
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
In behavioral economics, the endowment effect refers to A) most people believe that most wealthy people inherit their wealth. B) many people would be indifferent between being endowed with money or knowledge. C) many people place a higher value on what they own than when they consider purchasing. D) most people respond to tax incentives […]
Date: September 9th, 2020
In behavioral economics, the term salience refers to A) relevance to the problem being investigated. B) people only consider information when it is conveyed in a subtle manner. C) how an experiment is designed. D) people consider information when it is presented in an “eye grabbing” manner. ANSWER D
Date: September 9th, 2020
