Deck 4: Individual and Market Demand

Question 1

The price of good A goes up.As a result the demand for good B shifts to the left.From this we can infer that:

A)good A is a normal good.
B)good B is an inferior good.
C)goods A and B are substitutes.
D)goods A and B are complements.
E)none of the above

Answer 1

D

Question 2

When the income-consumption curve has a positive slope throughout its entire length,we can conclude that

A)both goods are inferior.
B)both goods are normal.
C)the good on the vertical (y)axis is inferior.
D)the good on the horizontal (x)axis is inferior.

Answer 2

B

Question 3

Which of the following is true regarding income along a price-consumption curve?

A)Income is increasing.
B)Income is decreasing.
C)Income is constant.
D)The level of income depends on the level of utility.

Answer 3

C

Question 4

If an Engel curve has a positive slope

A)both goods are normal.
B)the good on the horizontal axis is normal
C)as the price of the good on the horizontal axis increases,more of both goods in consumed.
D)as the price of the good on the vertical axis increases,more of the good on the horizontal axis is consumed.

Question 5

According to a survey by the U.S.Bureau of Labor Statistics,which of the following statements about annual U.S.household consumer expenditures is false?

A)The income elasticity of demand for entertainment is positive.
B)The income elasticity of demand for owner-occupied housing is positive.
C)The income elasticity of demand for rental housing is positive.
D)The income elasticity of demand for health care is positive.
E)Average family expenditures increase with income.

Question 6

Which of the following is true regarding utility along a price-consumption curve?

A)It is constant.
B)It changes from point to point.
C)It changes only if income changes.
D)It changes only for normal goods.

Question 7

Which of the following goods has a low,but positive,income elasticity of demand?

A)furniture.
B)new cars.
C)health insurance.
D)all of the above
E)none of the above

Question 8

The income-consumption curve for Dana between Qa and Qb is given as: Qa = Qb.His budget constraint is given as: 120 = Qa + 4Qb
How much Qa will Dana consume to maximize utility?

A)0
B)24
C)30
D)60
E)More information is needed to answer this question.

Question 9

As we move downward along a demand curve for apples,

A)consumer well-being decreases.
B)the marginal utility of apples decreases.
C)the marginal utility of apples increases.
D)Both A and B are true.
E)Both A and C are true.

Question 10

Consider a graph on which one good Y is on the vertical axis and the only other good X is on the horizontal axis.On this graph the income-consumption curve has a positive slope for low incomes,then it takes a zero slope for a higher income,and then it takes a negative slope for even higher incomes (the curve looks like an arc,first rising and then falling as income increases).This curve illustrates that,for all income levels,

A)both X and Y are normal.
B)only Y is normal.
C)both X and Y are inferior.
D)only X is normal.

Question 11

Use the following statements to answer this question: I.A price-consumption curve is derived by varying the price of asparagus.If the price-consumption curve is an upward sloping straight line,the demand curve for asparagus must be downward sloping.
II)Fred consumes only food and clothing.Fred's Engel curve traces out the utility maximizing combinations of food and clothing associated with each and every income level.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 12

The change in the price of one good has no effect on the quantity demanded of another good.These goods are:

A)complements.
B)substitutes.
C)both inferior.
D)both Giffen goods.
E)none of the above

Question 13

The curve in the diagram below is called:

A)the price-consumption curve.
B)the demand curve.
C)the income-consumption curve.
D)the Engel curve.
E)none of the above

Question 14

Which of the following pairs of goods are NOT complements?

A)Hockey sticks and hockey pucks
B)Computer CPUs and computer monitors
C)On-campus student housing and off-campus rental apartments
D)all of the above
E)none of the above

Question 15

Consider two goods X and Y available for consumption.Assume that the price of X changes while the price of Y remains fixed.For these two goods,the price-consumption curve illustrates the

A)relationship between the price of X and consumption of Y.
B)utility-maximizing combinations of X and Y for each price of X.
C)relationship between the price of Y and the consumption of X.
D)utility-maximizing combinations of X and Y for each quantity of X.

Question 16

Which of the following claims is true at each point along a price-consumption curve?

A)Utility is maximized but income is not all spent.
B)All income is spent,but utility is not maximized.
C)Utility is maximized,and all income is spent.
D)The level of utility is constant.

Question 17

An individual demand curve can be derived from the __________ curve.

A)price-consumption
B)price-income
C)income-substitution
D)income-consumption
E)Engel

Question 18

The income-consumption curve

A)illustrates the combinations of incomes needed with various levels of consumption of a good.
B)is another name for income-demand curve.
C)illustrates the utility-maximizing combinations of goods associated with every income level.
D)shows the utility-maximizing quantity of some good (on the horizontal axis)as a function of income (on the vertical axis).

Question 19

The curve in the diagram below is called

A)the price-consumption curve.
B)the demand curve.
C)the income-consumption curve.
D)the Engel curve.
E)none of the above

Question 20

Which of the following pairs of goods are substitutes?

A)Baseball bats and baseballs
B)Hot dogs and mustard
C)Computer hardware and software
D)Gasoline and motor oil
E)Owner-occupied housing and rental housing

Question 21

Based on the diagram below it can be inferred that:

A)hot dogs are a normal good for all levels of income.
B)hot dogs are an inferior good,but not a Giffen good,for all levels of income.
C)hot dogs are a Giffen good for all levels of income.
D)hot dogs are an inferior good for low levels of income,but at higher levels of income become a normal good.
E)none of the above

Question 22

Use the following two statements in answering this question: I.For all Giffen goods the substitution effect is larger than the income effect.
II)For all inferior goods the substitution effect is larger than the income effect.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 23

Which of the following is true concerning the substitution effect of a decrease in price?

A)It will lead to an increase in consumption only for a normal good.
B)It always will lead to an increase in consumption.
C)It will lead to an increase in consumption only for an inferior good.
D)It will lead to an increase in consumption only for a Giffen good.

Question 24

Good A is a Giffen good.If the price of good A were to suddenly double,the income effect would cause the purchases of good A to increase by

A)more than double.
B)exactly double.
C)less than double.
D)Any of the above are possible.
E)none of the above

Question 25

Use the following two statements in answering this question: I.All Giffen goods are inferior goods.
II)All inferior goods are Giffen goods.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II true.
D)I and II are false.

Question 26

Figure 4.1
A consumer's original utility maximizing market basket of goods is shown in Figure 4.1 as point A.Following a price change,the consumer's utility maximizing market basket changes is at point B.
Refer to Figure 4.1.The substitution effect of the price change in food on the quantity of food purchased is:

A)the change from F3 to F1.
B)the change from F3 to F2.
C)the change from F2 to F1.
D)the change from F1 to F2.
E)none of the above

Question 27

Which of the following is true concerning the income effect of a decrease in price?

A)It will lead to an increase in consumption only for a normal good.
B)It always will lead to an increase in consumption.
C)It will lead to an increase in consumption only for an inferior good.
D)It will lead to an increase in consumption only for a Giffen good.

Question 28

Which of the following describes the Giffen good case? When the price of the good

A)rises,the income effect is opposite to and greater than the substitution effect,and consumption falls.
B)falls,the income effect is in the same direction as the substitution effect,and consumption rises.
C)falls,the income effect is in the opposite direction to the substitution effect,and consumption falls.
D)falls,the income effect is in opposite direction to the substitution effect and consumption rises.
E)Both A and D are correct.

Question 29

Suppose that a consumer regards two types of soap as perfect substitutes for one another.The price consumption path generated by changing the price of one type of soap

A)is always upward sloping.
B)is always horizontal.
C)is always vertical.
D)corresponds with the axis for the cheaper soap.
E)corresponds with the axis for the more expensive soap.

Question 30

Use the following statements to answer this question: I.The income-consumption curve for perfect complements is a straight line.
II)The price-consumption curve for perfect complements is a straight line.

A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are false.

Question 31

Assume that beer is a normal good.If the price of beer rises,then the substitution effect results in the person buying __________ of the good and the income effect results in the person buying __________ of the good.

A)more,more
B)more,less
C)less,more
D)less,less

Question 32

Assume that beer is an inferior good.If the price of beer falls,then the substitution effect results in the person buying __________ of the good and the income effect results in the person buying __________ of the good.

A)more,more
B)more,less
C)less,more
D)less,less

Question 33

Jon's income-consumption curve is a straight line from the origin with a positive slope.Now suppose that Jon's preferences change such that his income-consumption curve remains a straight line but rotates 15 degrees clockwise.Jon's demand curve for the good on the horizontal axis

A)will shift left.
B)will shift right.
C)will not change.
D)might do any of the above.

Question 34

Good A is a normal good.The demand curve for good A:

A)slopes downward.
B)usually slopes downward,but could slope upward.
C)slopes upward.
D)usually slopes upward,but could slope downward.

Question 35

Good A is an inferior good.If the price of good A were to suddenly double,the substitution effect would cause the purchases of good A to increase by

A)more than double.
B)exactly double.
C)less than double.
D)Any of the above are possible.
E)none of the above

Question 36

For an inferior good,the income and substitution effects

A)work together.
B)work against each other.
C)can work together or in opposition to each other depending upon their relative magnitudes.
D)always exactly cancel each other.

Question 37

The substitution effect of a price change for product X is the change in consumption of X associated with a change in

A)the price of X,with the level of utility held constant.
B)the price of X,with the level of real income not considered.
C)the price of X,with the prices of other goods changing by the same percentage as that for product X.
D)income,with prices of other goods held constant.

Question 38

The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the __________ effect.

A)Giffen
B)real price
C)income
D)substitution

Question 39

A Giffen good

A)is always the same as an inferior good.
B)is the special subset of inferior goods in which the substitution effect dominates the income effect.
C)is the special subset of inferior goods in which the income effect dominates the substitution effect.
D)must have a downward sloping demand curve.

Question 40

Your income response for bicycle riding changes with the amount of income you earn.At low levels of income,you view bicycle riding as an inferior good and substitute other types of transportation (e.g.,auto travel)as your income rises.However,you view bicycle riding as a normal good after your income rises above a particular level.What shape does your Engel curve for bicycle riding have?

A)Vertical line
B)Horizontal line
C)C-shaped
D)Upward sloping
E)none of the above

Question 41

In a recent article,two economists estimated that the 37.5% increase in price that would result from a 75 cent tax increase on cigarettes would lead to a decrease in smoking among college students of 30%.What can you conclude about the demand for cigarettes among college students?

A)It is price elastic.
B)It is price inelastic.
C)It is unit elastic.
D)It is perfectly inelastic.

Question 42

What is the shape of the total revenue curve derived from a linear downward sloping demand curve?

A)Horizontal
B)Vertical
C)U-shaped
D)Inverted u-shaped

Question 43

Recently,Skooterville has experienced a large growth in population.As a result,the demand curve for telephone service in Skooterville:

A)has shifted to the right.
B)has shifted to the left.
C)has shifted down.
D)Both B and C are correct.
E)none of the above

Question 44

The Russian government wants to reduce the consumption of vodka.A one hundred rouble tax on each bottle purchased may reduce the consumption of vodka under which circumstance(s)?

A)Vodka is an inferior good.
B)Vodka is a normal good.
C)Vodka is an inferior good and the taxes collected from this tax are rebated to consumers.
D)Vodka is a normal good and the taxes collected from this tax are rebated to consumers.
E)both B and C

Question 45

Figure 4.1
A consumer's original utility maximizing market basket of goods is shown in Figure 4.1 as point A.Following a price change,the consumer's utility maximizing market basket changes is at point B.
Refer to Figure 4.1.The income effect of the price change in food on the quantity of food purchased is:

A)the change from F3 to F1.
B)the change from F3 to F2.
C)the change from F2 to F1.
D)the change from F1 to F2.
E)none of the above

Question 46

Use the following two statements to answer this question: I.The price elasticity of demand is constant along the entire length of a linear demand curve.
II)The price elasticity of demand is the special name that economists give to the slope of a demand curve.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 47

You consume good X (horizontal axis)and good Y (vertical axis),and your indifference curves are vertical lines because you do not gain any satisfaction from consumption of Y.As the price of X declines,the change in consumption of X is entirely composed of the:

A)income effect.
B)substitution effect.
C)Giffen effect.
D)independent good effect.

Question 48

What is the shape of the total revenue curve derived from a horizontal demand curve?

A)Horizontal
B)Vertical
C)U-shaped
D)Upward sloping,with a positive slope

Question 49

Which of the following is true about the demand for gasoline?

A)it is probably more price elastic in the long run because price will increase by a higher percentage.
B)it is probably more price elastic in the long run because it is easier to find substitutes for gasoline in the long run.
C)it is probably more price elastic in the short run because price will increase by a higher percentage.
D)it is probably more price elastic in the short run because it is easier to find substitutes for gasoline in the short run.

Question 50

When a good has a unitary price elasticity,consumer expenditures for the good

A)change in the same direction as a price change.
B)change in the opposite direction to a price change,but not necessarily by the same percentage as the price change.
C)do not change when the price of the good decreases.
D)change in the opposite direction and by the same percentage as any price change.

Question 51

Price elasticity of demand measures the

A)slope of the demand curve.
B)sensitivity of quantity demanded to changes in the price of substitute goods.
C)sensitivity of price to changes in the quantity demanded of substitute goods.
D)sensitivity of quantity demanded to changes in price.

Question 52

Figure 4.1
A consumer's original utility maximizing market basket of goods is shown in Figure 4.1 as point A.Following a price change,the consumer's utility maximizing market basket changes is at point B.
Based on Figure 4.1,food is:

A)a normal good.
B)an inferior good,but not a Giffen good.
C)a Giffen good.
D)none of the above

Question 53

Based Figure 4.2,clothing is:

A)a normal good.
B)an inferior good,but not a Giffen good.
C)a Giffen good.
D)none of the above

Question 54

As the price of good X increases from $5 to $8,quantity demanded falls from 100 to 80.Based upon this information we can conclude that the demand for X is

A)elastic.
B)inelastic.
C)unit inelastic.
D)insufficient information for judgment.

Question 55

When a good is price inelastic,consumer expenditures on the good

A)increase when price increases.
B)decrease when price increases.
C)do not change when price increases.
D)are not related to price elasticity of demand.

Question 56

Suppose the price of rice increases and you view rice as an inferior good.The substitution effect results in a __________ change in rice consumption,and the income effect leads to a __________ change in rice consumption.

A)positive,positive
B)positive,negative
C)negative,positive
D)negative,negative

Question 57

Figure 4.2
A consumer's original utility maximizing market basket of goods is shown in Figure 4.2 as point A.Following a price change,the consumer's utility maximizing market basket is at point B.
Refer to Figure 4.2.The substitution effect on the quantity of clothing purchased is:

A)the change from C3 to C1.
B)the change from C3 to C2.
C)the change from C2 to C1.
D)the change from C1 to C2.
E)none of the above

Question 58

Figure 4.2
A consumer's original utility maximizing market basket of goods is shown in Figure 4.2 as point A.Following a price change,the consumer's utility maximizing market basket is at point B.
Refer to Figure 4.2.The income effect on the quantity of clothing purchased is:

A)the change from C1 to C3.
B)the change from C1 to C2.
C)the change from C2 to C3.
D)the change from C3 to C2.
E)none of the above

Question 59

A consumer spends his income on food and rent.The government places a $1 tax on food.To restore the pre-tax consumption level of food the rebate paid to consumers will be smallest when

A)the own price elasticity of demand for food is 2,and the income elasticity of demand for food is 5.
B)the own price elasticity of demand for food is 5,and the income elasticity of demand for food is 5.
C)the own price elasticity of demand for food is 2,and the income elasticity of demand for food is 10.
D)the own price elasticity of demand for food is 5,and the income elasticity of demand for food is 10.

Question 60

The demand for sirloin steak is probably more elastic than the demand for all meat because

A)steak is very expensive.
B)people are worried about cholesterol.
C)cattle raising is not very profitable.
D)there are more substitutes for sirloin steak than for all meats.

Question 61

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called

A)producer surplus.
B)consumer surplus.
C)cost benefit analysis.
D)net utility.

Question 62

Microsoft wants to calculate the effect of a worldwide 5% price cut on its sales of Excel to clients in different countries.Microsoft sells Excel at different prices in U.S.,Japan and Europe.Before the price cut U.S.sales were twice sales in Japan and Europe.If the price of elasticity of demand in the U.S.,Japan and Europe are -3,-4,and -2 respectively,the worldwide sales rise by

A)10%.
B)15%.
C)20%.
D)25%.
E)none of the above

Question 63

The price of beef and quantity of beef traded are P and Q,respectively.Given this information,consumer surplus is the area:

A)0BCQ
B)ABC
C)ACP
D)CBP
E)0ACQ

Question 64

The price of video cassette recorders (VCRs)remains constant,but the market demand curve for VCRs shifts leftward as consumers shift to DVDs and other video technologies.What happens to the consumer surplus in this market as the demand curve shifts?

A)Increases
B)Decreases
C)Remains the same
D)We do not have enough information to answer this question.

Question 65

Many governments around the world attempt to improve the incomes of commodity producers by taking steps to increase the commodity price in the domestic market.Although this may reduce quantity demanded for the product,the action may be effective because:

A)commodity supply tends to be inelastic,so quantity does not decline by much.
B)commodity supply tends to be elastic,so producer income increases as a result of the higher prices and quantities.
C)commodity demand tends to be inelastic,so higher prices generate higher sales revenue.
D)commodity supply tends to be elastic,so producer income increases as a result of the higher prices and quantities.

Question 66

When the price of wood (which is an input in the production of furniture)falls,the consumer surplus associated with the consumption of furniture

A)increases.
B)decreases.
C)does not change.
D)could be any of the above.

Question 67

To determine whether an increase in the price of gasoline results in a consumer spending a larger share of their expenditure on gasoline we need to know

A)only how much money the consumer spends on gasoline before the price change
B)only the change in the price of gasoline
C)only the change in the price of gasoline as a percentage of the original price
D)only the own price elasticity of demand for gasoline
E)none of the above

Question 68

The point price elasticity of demand for red herring is -4.The demand curve for red herring is: Q = 120 - P.What is the price of red herring?

A)$96
B)$80
C)$100
D)$120
E)none of the above

Question 69

Consider the following statements when answering this question. I.If no consumer has a kinked demand curve for CDs,then the market demand curve for CDs cannot be kinked either.
II)If at a price of $10,every consumer has inelastic demand,then at that price the market demand for CDs will be inelastic too.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 70

Gold buyers are located in New York and Zurich.At the current price of gold,$400 an ounce,worldwide demand for gold is 10,000 ounces; and the price elasticity of demand for gold in New York and Zurich are -3 and -2 respectively.If the slope of each demand curve in New York is the same as in Zurich,then the quantity of gold demanded by dealers in Zurich is

A)10,000/3.
B)5,000.
C)6,000.
D)10,000.
E)none of the above

Question 71

What is the shape of the marginal revenue curve derived from a linear downward sloping demand curve?

A)Horizontal
B)Vertical
C)U-shaped
D)Downward sloping,with a constant slope

Question 72

Consider a particular market-clearing price and quantity under a perfectly competitive equilibrium.As the demand curve at this point becomes more inelastic,the consumer surplus in the market tends to:

A)increase.
B)decrease.
C)remain the same.
D)We do not have enough information to answer this question.

Question 73

General Motors estimates that U.S.demand for its newest product will be: Qus = 30,000 - 0.5P.Export demand will be Qex = 25,000 - 0.5P.The total market demand curve for this product will be a

A)straight line with a slope of -0.5.
B)straight line with a slope of -1.0.
C)kinked line with the kink at Q = 25,000.
D)kinked line with the kink at P = 50,000.
E)none of the above

Question 74

The area below the demand curve and above the price line measures

A)consumer surplus.
B)economic profit.
C)elasticity of demand.
D)the total value obtained from consuming the good or service.

Question 75

Suppose the market demand curve for hourly dial-up internet service is completely elastic.At the market equilibrium price under perfect competition,the consumer surplus in this market equals:

A)total consumer expenditures.
B)total sales revenue.
C)zero.
D)an amount slightly more than total consumer expenditure.

Question 76

In closing down a military base,environmental inspectors found 100 tons of toxic waste.Which of the following is NOT a determinant of the consumer surplus generated by cleaning up 40 tons of waste?

A)The price of removing a ton of toxic waste
B)The original quantity of toxic waste found by the inspectors
C)The quantity of toxic waste removed by cleanup
D)The effect of each ton reduction of toxic waste on the profitability of the alternative uses for this land
E)The effect of each ton reduction of toxic waste on the health of citizens living near the base

Question 77

A local retailer has decided to carry a well-known brand of shampoo.The marketing department tells them that the quarterly demand by an average man is: Qd = 3 - 0.25P
And the quarterly demand by an average woman is:
Qd = 4 - 0.5P
The market consists of 10,000 men and 10,000 women.How may bottles of shampoo can they expect to sell if they charge $6 per bottle?

A)20,000
B)33,000
C)25,000
D)10,000
E)none of the above

Question 78

The demand curves for gold in New York and Zurich can both be represented by a line with negative slope,-b.When the price is zero the demand for gold is x ounces higher in New York than in Zurich.At the current price of gold the price elasticity of demand for gold in New York and Zurich is -3 and -4 respectively.The value of x equals

A)a quarter of the current demand for gold in New York
B)a third of the current demand for gold in New York
C)a half of the current demand for gold in New York
D)three-quarters of the current demand for gold in New York
E)none of the above

Question 79

Which of the following functions is least likely to represent a real demand curve?

A)Q = 120 - 2P
B)Q = 120 - 3P + 2I
C)Q = 120/P
D)Q = 120 + 3P - 2I
E)Q = 120/(Pa + Pb)

Question 80

Suppose your manufacturing firm is not a price-taking seller (i.e.,has some control over your product price)and sells machinery to U.S.(domestic)buyers as well as foreign buyers.The domestic demand for your product is inelastic but the foreign demand is elastic,and the machinery is bulky so that the high transport costs prevent resale among the buyers.You could charge both groups of buyers the same price for the machinery,but you know that you could increase total sales revenue by charging the domestic buyers a __________ price and charging the foreign customers a __________ price.

A)higher,higher
B)higher,lower
C)lower,higher
D)lower,lower