Deck 2: From Demand to Welfare, Constraints, Choices, and Demand

Question 1

Which of the following does NOT occur when the price of a good increases?

A) The good becomes more expensive relative to all other goods
B) The consumer's purchasing power increases
C) Consumers shift their purchases away from the more expensive good
D) The consumer is effectively poorer than before the increase in price

Answer 1

The consumer's purchasing power increases

Question 2

-Refer to Figure above. The substitution effect is shown by the movement

A) From bundle A to bundle C
B) From bundle A to bundle B
C) From bundle B to bundle C
D) From bundle C to bundle B

Answer 2

From bundle A to bundle C

Question 3

-Refer to Figure above. The income effect is shown by the movement

A) From bundle A to bundle C
B) From bundle A to bundle B
C) From bundle B to bundle C
D) From bundle C to bundle B

Answer 3

From bundle C to bundle B

Question 4

The effect of a compensated price change is known as:

A) The price effect of a price change
B) The income effect of a price change
C) The substitution effect of a price change
D) The replacement effect of a price change

Question 5

Which of the following does NOT describe a compensating variation?

A) The amount of money that exactly compensates a consumer for a change in economic circumstances
B) The amount of money that produces an equivalent effect on a consumer's well-being
C) The most some one (someone) is willing to pay to experience something beneficial
D) The least someone is willing to pay to experience something harmful

Question 6

-Refer to Figure above. Suppose the price of pizza is $8.50. Then the consumer will purchase _____ pizzas and the net benefit is ______.

A) 5; $9.50
B) 4; $8.00
C) 5; $3.50
D) 4; $9.50

Question 7

-Refer to Figure above. Suppose the price of pizza is $9.75. Then consumer surplus is ______.

A) $3.75
B) $3.50
C) $29.25
D) $33.00

Question 8

-Refer to Figure above. If the price is $1,500, then consumer surplus is equal to

A) $175,000
B) $535,000
C) $1,000
D) $262,500

Question 9

Suppose a consumer's nominal income is $50,000 and the cost-of-living index is 1.3. The consumer's real income is

A) $50,000
B) $65,000
C) $53,000
D) $38, 462

Question 10

For low wages, the leisure demand curve slopes ______; for higher wages it slopes ______.

A) Upward; downward
B) Downward; upward
C) Downward; downward
D) Upward; upward

Question 11

A consumer's budget constraint is determined by

A) The consumer's income
B) The consumer's income and preferences
C) The consumer's income and the prices of the goods they buy
D) The consumer's preferences and the prices of the goods they buy

Question 12

-Refer to Figure above. Which graph represents an increase in the consumer's income?

A) A
B) B
C) C
D) D

Question 13

Whenever a consumer purchases good X but not good Y, then

A) MRS_XY >= P_X/P_Y at the chosen bundle
B) MRS_XY <= P_X/P_Y at the chosen bundle
C) MRS_XY = P_X/P_Y at the chosen bundle
D) MRS_XY = -P_X/P_Y at the chosen bundle

Question 14

Stewie spends all of his income on movie rentals (R) and noodles (N). His marginal rate of substitution for rentals with noodles is given by MRS_RN = 20/√ R. Suppose that movies rent for $2 and noodles cost $1. Plot his income-consumption curve, his Engle curve for movie rentals and his Engel curve for noodles.