Question 1

If John consumes only two goods,A and B,and he is maximizing his utility subject to his budget constraint, A)MU_A/MU_B is at a maximum. B)MU_A/MU_B equals the ratio of the total utility of A to the total utility of B. C)MU_A/MU_B equals 1. D)MU_A/MU_Bequals zero. E)MU_A/MU_B equals the ratio of the price of A to the price of B.

Accepted Answer

When John is maximizing his utility subject to his budget constraint, the marginal rate of substitution (MU_A/MU_B) equals the ratio of the prices of the two goods (Price_A/Price_B).

Question 2

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region.  FIGURE 6-3
-Refer to Figure 6-3.On the regional market demand curve for cement (not shown),at which price level(s)is there a "kink" in the demand curve?
A)$10
B)$20 and $30
C)$30 and $70
D)$40 and $70
E)$80

Accepted Answer

A "kink" in the demand curve typically occurs at price levels where there is a noticeable change in the slope of the curve, often due to changes in consumer behavior or market conditions. In this case, the kink is at $30 and $70.

Question 3

Consider the income and substitution effects of price changes.The income effect refers to the change in quantity demanded that occurs as a result of a change in
A)money income,with relative prices held constant.
B)real income,with relative prices held constant.
C)relative prices,with real income held constant.
D)marginal utility,with real income held constant.
E)preferences,with real income held constant.

Accepted Answer

The income effect refers to the change in quantity demanded that occurs as a result of a change in real income, with relative prices held constant. This means that when the price of a good changes, the consumer's purchasing power changes, leading to a change in their real income. The income effect takes into account the fact that consumers may change their consumption of a good in response to changes in their purchasing power. The substitution effect, on the other hand, refers to the change in quantity demanded that occurs as a result of a change in relative prices, with real income held constant. This means that when the price of a good changes relative to the price of another good, it may become relatively more or less expensive, leading consumers to change their consumption patterns. Together, these two effects help to explain how consumers react to changes in prices in the market.

Question 4

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes.Which of the following can we infer?
A)The income effect is negative and outweighs the substitution effect.
B)The income effect is negative and reinforces the substitution effect.
C)The income effect just offsets the substitution effect.
D)The income effect is positive and exceeds the substitution effect.
E)The substitution effect outweighs the income effect.

Accepted Answer

The decrease in purchases despite a price drop suggests potatoes are an inferior good, where the negative income effect outweighs the substitution effect.

Question 5

Consider the income and substitution effects of price changes.If the price of a normal good changes,the income effect of the price change will
A)always be larger than the substitution effect.
B)always be to increase quantity demanded.
C)reinforce the substitution effect.
D)produce a positively sloped demand curve.
E)oppose the substitution effect.

Accepted Answer

The income effect and substitution effect work together to determine the overall effect of a price change on the quantity demanded of a normal good. The income effect is the change in quantity demanded due to a change in purchasing power, while the substitution effect is the change in quantity demanded due to a change in the relative price of the good. In the case of a normal good, the income and substitution effects reinforce each other, meaning that they work in the same direction. Therefore, the income effect will reinforce the substitution effect rather than oppose it, as stated in option E. Options A, B, and D are also incorrect. While it is true that the income effect is usually larger than the substitution effect for normal goods, this is not always the case, so option A is incorrect. Also, the direction of the income effect on quantity demanded depends on whether the good is normal or inferior, so option B is incorrect. Finally, a positively sloped demand curve implies that an increase in price will decrease quantity demanded, whereas the question does not specify the direction of the price change, so option D is also incorrect.

Question 6

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit,and the price of "all other goods" is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.What is his marginal utility from the consumption of "all other goods" if he is maximizing his utility?
A)5
B)20
C)25
D)200
E)240

Accepted Answer

To maximize utility, Bjorn should allocate his budget such that the marginal utility per dollar spent is equal for both goods. The marginal utility per dollar for transportation is 60/5 = 12. Therefore, the marginal utility per dollar for "all other goods" should also be 12. Since the price of "all other goods" is $20, the marginal utility should be 12 * 20 = 240.

Question 7

The substitution effect of a price change
A)will result in the consumer buying less of a good at a lower price.
B)will result in the consumer buying less of a good at a higher price.
C)outweighs the income effect for Giffen goods.
D)is equal to the income effect for normal goods.
E)is equal to the income effect for inferior goods.

Accepted Answer

The substitution effect occurs when a price change makes a good relatively cheaper or more expensive compared to other goods, leading consumers to substitute away from the good that has become relatively more expensive (buying less of it) and towards the good that has become relatively cheaper.

Question 8

Consider the income and substitution effects of price changes.The substitution effect is the change in quantity demanded that occurs
A)as a result of a change in absolute prices,with real income held constant.
B)as a result of a change in relative prices with money income held constant.
C)as a result of a change in relative prices,with real income held constant.
D)when one good is substituted for another.
E)with a change in the relative prices of two or more goods.

Accepted Answer

The substitution effect is the change in quantity demanded as a result of a change in relative prices, with real income held constant. This means that the consumer is not affected by changes in their purchasing power due to changes in prices. The substitution effect occurs when a consumer switches from one good to another that has become relatively cheaper.

Question 9

Suppose there are only two goods,A and B,and that consumer income is constant.If the price of good A falls and the consumption of good B rises,we can conclude that
A)A is a normal good.
B)B is a normal good.
C)A is an inferior good.
D)B is an inferior good.
E)both A and B are normal goods.

Accepted Answer

The answer of Suppose there are only two goods,A and...

Question 10

Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumer's real income to
A)rise and the quantity purchased to fall.
B)fall and the quantity purchased to fall.
C)rise and the quantity purchased to rise.
D)fall and the quantity purchased to rise.
E)remain constant.

Accepted Answer

For a product with an income elasticity greater than one, a price increase will decrease the quantity demanded. However, since the good is considered a normal good (income elasticity greater than 0), the consumer's real income will decrease as well. The decrease in real income will result in a decrease in the quantity demanded. Therefore, both the income and substitution effects lead to a decrease in the quantity demanded in response to a price increase.

Question 11

The market demand curve is derived from
A)the vertical summation of individual demand curves.
B)the average quantity demanded of all individuals in the economy.
C)a weighted average of the quantity demanded of all individuals in the economy at each price.
D)the horizontal summation of individual demand curves.
E)market data provided by Statistics Canada.

Accepted Answer

The market demand curve is derived by horizontally adding up individual demand curves at each price level, so D is the correct choice. The remaining options are incorrect, as A and C refer to vertical summation of individual demand, B refers to the average quantity demanded which is not a sufficient basis for constructing the market demand curve, and E is unrelated to the market demand curve construction.

Question 12

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region.  FIGURE 6-3
-Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $80 per cubic metre?
A)0
B)1000
C)2000
D)3000
E)4000

Accepted Answer

The market demand for cement at a price of $80 per cubic metre is 1000 cubic metres per month. This is the quantity demanded at that price, as shown by the intersection of the demand curve and the price line at $80.

Question 13

A demand curve for a normal good is downward sloping due to
A)the income effect.
B)the substitution effect.
C)the combination of income and substitution effects.
D)neither the substitution effect nor the income effect.
E)the Giffen effect.

Accepted Answer

The downward slope of the demand curve for a normal good is due to both the income effect and substitution effect. The income effect is the change in quantity demanded that results from a change in purchasing power. As the price of a good decreases, consumers' purchasing power increases, leading them to buy more of the good. The substitution effect is the change in quantity demanded that results from a change in the relative price of a good compared to other goods. As the price of a good decreases relative to other goods, consumers are more likely to substitute that good for others, leading to an increase in quantity demanded. Therefore, the downward sloping demand curve for a normal good is due to both effects working together.

Question 14

Marginal utility analysis predicts a downward-sloping demand curve for good X because A)as P_Xfalls,the ratio MU_X/P_X becomes smaller,causing the consumer to purchase more of good X. B)as P_Xrises,the consumer increases purchases of X such that MU_X/P_X is equal to MU/P for all other products. C)utility-maximizing consumers equate marginal utility received for each product consumed. D)all demand curves are downward sloping,regardless of the behaviour of consumers. E)as P_X falls,the consumer increases purchases of X until MU_X/P_X is equal to MU/P for all other products.

Accepted Answer

As the price of good X falls, consumers will purchase more of it until the marginal utility per dollar spent on X equals the marginal utility per dollar spent on other goods, leading to a downward-sloping demand curve.

Question 15

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit,and the price of "all other goods" is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.How many units of "all other goods" is he consuming if he is maximizing his utility?
A)25
B)60
C)200
D)240
E)There is not enough information to determine.

Accepted Answer

The answer of Bjorn is a student with a monthly...

Question 16

Suppose a consumer can purchase only two goods,soap and apples.If the price of soap falls and the consumption of apples increases,we can conclude that the increased consumption of apples is due to
A)neither the income effect nor the substitution effect.
B)both the income effect and the substitution effect.
C)the income effect only.
D)the substitution effect only.
E)the deflation effect.

Accepted Answer

The income effect occurs when a price change affects the consumer's purchasing power, allowing them to buy more of both goods. Here, the fall in the price of soap increases the consumer's real income, enabling them to purchase more apples.

Question 17

Laurie spends all of her money buying bread and cheese.The marginal utility she receives from the last loaf of bread is 60 and from the last block of cheese is 30.The price of bread is $3 and the price of cheese is $2.Laurie
A)is buying bread and cheese in utility-maximizing amounts.
B)should buy more bread and less cheese in order to maximize her utility.
C)should buy more cheese and less bread in order to maximize her utility.
D)is spending too much money on bread and cheese.
E)should buy more bread and more cheese in order to maximize her utility.

Accepted Answer

Laurie should equalize the marginal utility per dollar spent on each good. Currently, the marginal utility per dollar for bread is 60/3 = 20, and for cheese, it is 30/2 = 15. She should buy more bread and less cheese to maximize utility.

Question 18

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region.  FIGURE 6-3
-Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $20 per cubic metre?
A)0
B)4000
C)5000
D)10 000
E)14 000

Accepted Answer

The answer of Diagrams A,B,and C show 3 individual consumers'...

Question 19

If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be
A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.
E)of indeterminate slope.

Accepted Answer

When the income effect of a price change is negative and larger in absolute terms than the substitution effect, it means that the consumer is worse off after the price change and is more inclined to reduce consumption. This will result in a decrease in the quantity demanded, which corresponds to an upward sloping demand curve.

Question 20

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region.  FIGURE 6-3
-Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $60 per cubic metre?
A)0
B)1000
C)2000
D)3000
E)4000

Accepted Answer

The answer of Diagrams A,B,and C show 3 individual consumers'...

Quiz 6: Consumer Behaviour

If John consumes only two goods,A and B,and he is maximizing his utility subject to his budget constraint,

Consider the income and substitution effects of price changes.The income effect refers to the change in quantity demanded that occurs as a result of a change in

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes.Which of the following can we infer?

Consider the income and substitution effects of price changes.If the price of a normal good changes,the income effect of the price change will

The substitution effect of a price change

Consider the income and substitution effects of price changes.The substitution effect is the change in quantity demanded that occurs

Suppose there are only two goods,A and B,and that consumer income is constant.If the price of good A falls and the consumption of good B rises,we can conclude that

Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumer's real income to

The market demand curve is derived from

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3 -Refer to Figure 6-3.What is the market demand (in cubic metres per month) for cement at a price of $80 per cubic metre?

A demand curve for a normal good is downward sloping due to

Marginal utility analysis predicts a downward-sloping demand curve for good X because

Suppose a consumer can purchase only two goods,soap and apples.If the price of soap falls and the consumption of apples increases,we can conclude that the increased consumption of apples is due to

Laurie spends all of her money buying bread and cheese.The marginal utility she receives from the last loaf of bread is 60 and from the last block of cheese is 30.The price of bread is $3 and the price of cheese is $2.Laurie

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3 -Refer to Figure 6-3.What is the market demand (in cubic metres per month) for cement at a price of $20 per cubic metre?

If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3 -Refer to Figure 6-3.What is the market demand (in cubic metres per month) for cement at a price of $60 per cubic metre?