Deck 9: Demand for Goods and Supply of Labor and Capital

Question 1

Holding all prices fixed, income-demand curves relate changes in exogenous income to changes in the quantity of a good demanded.

Answer 1

True

Question 2

Since income and substitution effects point in the same direction for normal goods, the leisure demand curve will be shallower if leisure is a normal good than if leisure is an inferior good.

Answer 2

False

Question 3

If future consumption is a normal good, the interest rate/borrowing relationship cannot be upward sloping.

Answer 3

True

Question 4

The empirically observed backward-bending labor supply curve cannot arise from homothetic tastes.

Question 5

Leisure being an inferior good is necessary but not sufficient for labor supply to slope up.

Question 6

A downward sloping income-demand curve indicates that the good is a necessity.

Question 7

Assuming the same sized substitution effect, normal goods have steeper cross-price demand curves than inferior goods.

Question 8

Saving is equivalent to withdrawing financial capital from the market.

Question 9

Leisure being a normal good is neither necessary nor sufficient for labor supply to slope up.

Question 10

If a good is quasilinear, its own-price demand curve is vertical.

Question 11

The cross-price demand curve for Cobb-Douglas tastes is perfectly vertical.

Question 12

Suppose that utility over consumption and leisure takes the constant elasticity of substitution form .If falls between 0 and -1, then the labor supply curve is backward bending.

Question 13

If tastes are homothetic in leisure and consumption, labor supply curves slope up.

Question 14

For the same sized substitution effect, own-price demand curves for inferior goods are steeper than own price demand curves for normal goods.

Question 15

An increase in the price of good 2 will cause the demand curve for good 1 to shift out.

Question 16

Suppose your tastes over consumption and leisure have constant elasticity of substitution.I observe that, when your wage went up, you continued to work the same number of hours.From this, I can conclude that you have Cobb-Douglas tastes.

Question 17

Unless a good is a Giffen good, the demand curve shifts to the right as income rises.

Question 18

When tastes are quasilinear in leisure, the labor supply curve is vertical.

Question 19

In order for someone to switch from borrowing to saving when the interest rate falls, it must be that current consumption is an inferior good.

Question 20

Goods like exclusive designer clothes carry with them prestige value linked to their price.As a result, some people demand more of such goods as the price increases.For those people, such goods are Giffen goods.

Question 21

Suppose your utility function is given by .What is your demand function for ?

Question 22

Suppose your tastes can be represented by the utility function .Your demand for is

A) .
B) .
C)
D)
E)None of the above

Question 23

Consider a consumer who consumes only and .The price of falls.
a.On a graph with on the horizontal and on the vertical axis, illustrate the change in this consumer's budget constraint assuming exogenous income I.
b.Illustrate income and substitution effects for assuming that both goods are normal.
c.Can you tell whether the cross-price demand curve for is upward or downward sloping?
d.Suppose is leisure hours and is a composite consumption good.Consider an increase in the wage assuming a fixed endowment of leisure (and no exogenous source of income).How is your graph similar and how is it different from what you graphed in (a) through (c)?
e.Is the leisure-demand curve a cross-price demand curve? Why or why not?

Question 24

Suppose your tastes can be represented by the utility function .Your demand function for is

A) .
B) .
C)
D)