Question 1

Suppose the consumer's utility function is given by  where  The equation for this consumer's demand curve for  is
A) 
B) 
C) 
D)

Accepted Answer

To derive the demand curve for good X, we need to find the optimal quantity of X that maximizes the consumer's utility, given the price of X and the consumer's income.

The consumer's utility function is:

U(X,Y) = X^2 Y^3

We can use the marginal rate of substitution (MRS) to find how much of X the consumer is willing to give up for an extra unit of Y.

MRS = (MU_X/MU_Y) = 2XY^3 / 3X^2 Y^2 = 2/3 (X/Y)

Setting the MRS equal to the price ratio, we get:

P_X/P_Y = 2/3 (X/Y)

Solving for X, we get:

X = (3/2)(P_X/P_Y)Y

This is the consumer's demand function for good X. Therefore, the correct answer is B.

Question 2

The consumer's demand curve can be obtained analytically by solving which two equations?
A)  ;  where  is the initial level of utility.
B)  ; 
C)  ;  where  is the initial level of utility.
D)  ;  where  is the final level of utility.

Accepted Answer

The consumer's demand curve is obtained by solving the utility maximization problem subject to the budget constraint. This involves setting up the Lagrangian function and taking its partial derivatives with respect to the goods' prices and income. The resulting first-order conditions are two equations, one for each good, which represent the consumer's marginal rate of substitution of one good for another being equal to the price ratio. Solving these two equations simultaneously gives the consumer's demand curve for each good. Therefore, option B correctly lists the two equations that are solved to obtain the consumer's demand curve.

Question 3

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the price of one good changes holding income and the price of the other good constant is called the consumer's
A) income-consumption curve.
B) price-consumption curve.
C) demand curve.
D) Engel curve.

Accepted Answer

The line that connects the consumer's optimal baskets as the price of one good changes holding income and the price of the other good constant is called the price-consumption curve. It shows the effect of a change in the price of one good on the consumer's optimal consumption bundle. It allows us to see how the quantity demanded of one good changes as its price changes. The line that connects the consumer's optimal baskets as the price of one good changes holding income and the price of the other good constant is called the price-consumption curve. This curve shows how the quantity demanded of one good changes in response to a change in its price while keeping the other prices constant. It is also known as the demand curve for a single good or a commodity. The price-consumption curve is useful in determining the consumer's preferences and behavior in response to changes in prices. Therefore, the correct answer is B, the price-consumption curve.

Question 4

If a consumer's preferences for two goods,say food and clothing,are such that as income decreases,consumption of food increases but consumption of clothing decreases,we can say that
A) food and clothing are inferior goods.
B) food is a normal good and clothing is an inferior good.
C) food is an inferior good and clothing is a normal good.
D) food and clothing are both normal goods.

Accepted Answer

If as income decreases, consumption of food increases and consumption of clothing decreases, then food is an inferior good and clothing is a normal good.

Question 5

A curve that represents the consumer's "willingness to pay" is the consumer's
A) Exchange curve
B) Demand curve
C) Supply curve
D) None of the above

Accepted Answer

The consumer's "willingness to pay" is most accurately represented by the demand curve, as it shows the maximum price a consumer is willing to pay for a certain quantity of a good or service. The exchange curve refers to the trade-off between two goods, and the supply curve represents the willingness of producers to sell at different prices.

Question 6

Suppose when the consumer's income rises by 100%,the consumer's consumption of good  falls by 1%.We can infer that the consumer's income elasticity for good  is
A) -1
B) -0.01
C) 1
D) 0.01

Accepted Answer

The income elasticity of demand for a good measures the responsiveness of quantity demanded to a change in income. 
Using the formula: Income elasticity of demand = % change in quantity demanded / % change in income
Given, % change in income = 100% and % change in quantity demanded = -1% (negative sign indicating an inverse relationship between income and demand)
Thus, Income elasticity of demand = (-1%/ 100%) = -0.01
So, the best choice is B) -0.01 indicating that the good is an inferior good as an increase in consumer income leads to a decrease in demand for the good.

Question 7

In order to identify a consumer's demand curve from an optimal choice diagram we
A) change the consumer's income, holding the prices of both goods constant, and identify the baskets the consumer chooses with each income level.
B) change the price's of both goods, holding income constant, and identify the baskets the consumer chooses with each price level.
C) change the price of one good, holding income and the price of the other good constant, and identify the baskets the consumer chooses with each price level.
D) change the price of one good and then change the income level so that the consumer achieves the same level of utility as before the price change and then identify the optimal consumption baskets at each price level.

Accepted Answer

Changing the price of one good, holding income and the price of the other good constant, and identifying the baskets the consumer chooses with each price level is the correct method for identifying a consumer's demand curve. This is because it allows us to see how the consumer adjusts their consumption of one good in response to changes in its price while holding all other factors constant. By plotting the different quantities of the good demanded against the different prices, we can trace out the consumer's demand curve.

Question 8

Suppose the consumer's income elasticity for good  is -0.10 when monthly income is $1,000,and the consumer's income elasticity for good  is 0.10 when monthly income is $2,000.From this information we can infer that
A) good  is an inferior good for low levels of income and a superior good for high levels of income.
B) good  is a normal good for low levels of income and an inferior good for high levels of income.
C) good  in an inferior good for low levels of income and a normal good for high levels of income.
D) good  is a Giffen good.

Accepted Answer

We know that the income elasticity for good 11ea71e2_630f_0eb2_89cd_736b05645e94_TB1644_11 is negative, which means it is an inferior good. We also know that the income elasticity for good 11ea71e2_630f_35c3_89cd_7116c47e3c33_TB1644_11 is positive, which means it is a normal good. Therefore, the only option that matches these conditions is C: good 11ea71e2_630f_35c6_89cd_07fe14649194_TB1644_11 is an inferior good for low levels of income and a normal good for high levels of income.

Question 9

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's
A) income-consumption curve.
B) price-consumption curve.
C) demand curve.
D) Engel curve.

Accepted Answer

The line that connects the consumer's optimal baskets as income changes but holding the prices of goods constant is called the income-consumption curve. This curve shows the different combinations of goods that the consumer can purchase at different income levels while remaining indifferent between them. Thus, as the consumer's income increases, the income-consumption curve shifts outward, implying that the consumer can afford more of both goods. Therefore, the optimal choice in this situation is represented by the consumer's income-consumption curve.

Question 10

An Engel curve for good  describes
A) how the consumption of good  varies as the price of good  changes.
B) how the consumption of good  varies as the consumer's income changes.
C) how the consumption of good  varies as the consumption of good  changes.
D) how the consumption of good  varies as price-consumption curve changes.

Accepted Answer

An Engel curve shows how the quantity of a good consumed by a consumer changes as their income changes. Therefore, option B is the correct answer. Option A describes a price consumption curve, option C describes a cross-price elasticity of demand curve, and option D is not a relevant concept in this context.

Question 11

Suppose when the consumer's income rises by 100%,the consumer's consumption of good  falls by 1%.We can infer that good  is a(n)
A) normal good.
B) inferior good.
C) Giffen good.
D) marginal good.

Accepted Answer

The answer of Suppose when the consumer's income rises by...

Question 12

If a consumer's preferences for two goods,say food and clothing,are such that as income increases,consumption of food and clothing both increase,we can say that
A) food and clothing are inferior goods.
B) food is a normal good and clothing is an inferior good.
C) food is an inferior good and clothing is a normal good.
D) food and clothing are both normal goods.

Accepted Answer

If both goods increase as income increases, then food and clothing are both normal goods.

Question 13

Which of the following is held constant along an income-consumption curve?
A) Income.
B) Consumption of all goods.
C) The price of all goods other than the good of interest.
D) The prices of all goods.

Accepted Answer

The income-consumption curve shows how a consumer's optimal bundle of goods changes as their income changes, holding the prices of all goods constant.

Question 14

As the price of a good whose units are measured along the x-axis increases,holding the consumer's income and the price of the other good constant,the budget line will
A) shift inward toward the origin.
B) shift outward away from the origin.
C) rotate such that the y-intercept stays the same and the x-intercept shifts toward the origin.
D) rotate outward away from the origin.

Accepted Answer

When the price of a good increases, holding income and the price of the other good constant, the budget line rotates inward such that the y-intercept (representing the quantity of the other good) remains the same, but the x-intercept (representing the quantity of the good whose price has increased) shifts toward the origin. This reflects the decreased purchasing power for that good.

Question 15

Suppose when the consumer's income rises by 100%,the consumer's consumption of good  only increases 1%.We can infer that good  is a(n)
A) normal good.
B) inferior good.
C) Giffen good.
D) marginal good.

Accepted Answer

The answer of Suppose when the consumer's income rises by...

Question 16

Suppose when the consumer's income rises by 100%,the consumer's consumption of good  only increases by 1%.We can infer that the consumer's income elasticity for good  is
A) -0.01
B) -1
C) 0.01
D) 1

Accepted Answer

The income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income.

In this case, the income elasticity of demand for good 11ea71e2_630f_0eaf_89cd_23655f9b8be8_TB1644_11 is:

Income elasticity of demand = (% change in quantity demanded) / (% change in income)

In this case, we are given that when the consumer's income rises by 100%, the consumer's consumption of good 11ea71e2_630f_0eaf_89cd_23655f9b8be8_TB1644_11 only increases by 1%.

So, the income elasticity of demand can be calculated as follows:

Income elasticity of demand = (1%/100%) = 0.01

Therefore, the answer is C) 0.01

Question 17

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n)
A) price-consumption curve.
B) Engel curve.
C) demand curve.
D) good-consumption curve.

Accepted Answer

An Engel curve is a graph that shows the relationship between a consumer's income and the quantity of a good that the consumer purchases. It is also known as an income-consumption curve or budget line. Choice A is incorrect because the price-consumption curve shows the effects of a change in price on the quantity demanded by a consumer. Choice C is incorrect because the demand curve shows the relationship between price and quantity demanded by all consumers in the market, not just one individual consumer. Choice D is incorrect because there is no standard term called a "good-consumption curve".

Question 18

A negatively-sloped Engel curve implies a(n)
A) inferior good.
B) normal good.
C) Giffen good.
D) marginal good.

Accepted Answer

A negatively-sloped Engel curve implies that as income increases, the quantity demanded of the good decreases. This is characteristic of an inferior good, where consumers have a lower demand for the good as their income rises and they can afford more desirable alternatives.

Question 19

Evaluate the truthfulness of the following statements. I.The Engel curve for a normal good is upward-sloping.
II.The Engel curve for an inferior good is downward-sloping.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Accepted Answer

The answer of Evaluate the truthfulness of the following statements....

Question 20

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called
A) income elasticity of demand and it is negative when the good is a normal good.
B) income elasticity of demand and it is negative when the good is an inferior good.
C) price elasticity of demand and it is negative when the slope of the demand curve is negatively sloped.
D) None of the above.

Accepted Answer

Income elasticity of demand measures the responsiveness of demand to changes in income. It is typically positive for normal goods (goods for which demand increases as income increases) but negative for inferior goods (goods for which demand decreases as income increases). However, it is not common for income elasticity of demand to be negative overall. Therefore, option B is the correct answer.

Quiz 5: The Theory of Demand

Suppose the consumer's utility function is given by where The equation for this consumer's demand curve for is

The consumer's demand curve can be obtained analytically by solving which two equations?

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the price of one good changes holding income and the price of the other good constant is called the consumer's

If a consumer's preferences for two goods,say food and clothing,are such that as income decreases,consumption of food increases but consumption of clothing decreases,we can say that

A curve that represents the consumer's "willingness to pay" is the consumer's

Suppose when the consumer's income rises by 100%,the consumer's consumption of good falls by 1%.We can infer that the consumer's income elasticity for good is

In order to identify a consumer's demand curve from an optimal choice diagram we

Suppose the consumer's income elasticity for good is -0.10 when monthly income is $1,000,and the consumer's income elasticity for good is 0.10 when monthly income is $2,000.From this information we can infer that

On a typical optimal choice diagram,with budget lines and indifference curves,the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's

An Engel curve for good describes

Suppose when the consumer's income rises by 100%,the consumer's consumption of good falls by 1%.We can infer that good is a(n)

If a consumer's preferences for two goods,say food and clothing,are such that as income increases,consumption of food and clothing both increase,we can say that

Which of the following is held constant along an income-consumption curve?

As the price of a good whose units are measured along the x-axis increases,holding the consumer's income and the price of the other good constant,the budget line will

Suppose when the consumer's income rises by 100%,the consumer's consumption of good only increases 1%.We can infer that good is a(n)

Suppose when the consumer's income rises by 100%,the consumer's consumption of good only increases by 1%.We can infer that the consumer's income elasticity for good is

A graph that plots the consumer's level of consumption of a good against the consumer's income is called a(n)

A negatively-sloped Engel curve implies a(n)

Evaluate the truthfulness of the following statements. I.The Engel curve for a normal good is upward-sloping. II.The Engel curve for an inferior good is downward-sloping.

The type of elasticity of demand that is most commonly positively valued but that can be negative at times is called