Question 1

If a good is normal,then the Engel curve
A) Slopes upward
B) Slopes downward
C) Is vertical
D) Is horizontal

Accepted Answer

A normal good is one where the demand for the good increases as income increases. Thus, the Engel curve representing the relationship between a consumer's income and the quantity of the good consumed will slope upwards.

Question 2

A curve that shows how the best available consumption bundle changes as income changes (holding the consumer's preferences and all other prices fixed)is called
A) A price-consumption curve
B) An individual demand curve
C) An income-consumption curve
D) A budget line

Accepted Answer

An income-consumption curve shows how the best available consumption bundle changes as income changes. It holds the consumer's preferences and all other prices fixed, so it isolates the effect of changes in income on consumption choices. A price-consumption curve shows how the best available consumption bundle changes as the price of one good changes, while holding income and all other prices fixed. An individual demand curve shows the quantity of a good that a consumer is willing and able to buy at each price, holding all other factors constant. A budget line shows the combinations of two goods that a consumer can afford to buy with a given income and prices.

Question 3

If the income-consumption path slopes down,then
A) Both goods are inferior
B) Both goods are normal
C) One good is normal and the other good is inferior
D) We can't tell anything about whether the goods are normal or inferior

Accepted Answer

If the income-consumption path slopes down, one good must be inferior because the consumer purchases less of it as their income rises, indicating a decrease in its demand. The other good must be normal because the consumer purchases more of it as their income rises, indicating an increase in its demand. Therefore, only choice C is correct.

Question 4

-Refer to Figure 5.7.Which diagram best represents an Engle curve where soup is a normal good?
A) A
B) B
C) C
D) D

Accepted Answer

An Engle curve for a normal good is upward sloping, indicating that as income increases, the quantity demanded of the good also increases. Diagram A best represents this relationship.

Question 5

If an increase in the price of one good causes the demand curve for another good to shift to the left,then the two goods are
A) Substitutes
B) Complements
C) Normal
D) Unrelated

Accepted Answer

When the price of one good increases and the demand for another good decreases, it suggests that the two goods are complements, as they are consumed together. For example, if the price of coffee increases, the demand for creamer may decrease, as people may consume less coffee overall.

Question 6

-When the price elasticity of demand is large in magnitude,a _____ increase in the price leads to a _____ reduction in the amount purchased and the demand curve is relatively ______.
A) Slight; substantial; steep
B) Slight; slight; flat
C) Large; slight; steep
D) Slight; substantial; flat

Accepted Answer

When the price elasticity of demand is large in magnitude, it means that consumers are very responsive to price changes. Therefore, a slight increase in price leads to a substantial reduction in the amount purchased, indicating that the demand curve is relatively flat.

Question 7

-When the price elasticity of demand is small in magnitude,a _____ increase in the price leads to a _____ reduction in the amount purchased and the demand curve is relatively ______.
A) Slight; substantial; steep
B) Slight; slight; flat
C) Large; slight; steep
D) Slight; substantial; flat

Accepted Answer

When the price elasticity of demand is small in magnitude, it means that the quantity demanded is relatively unresponsive to price changes. Therefore, a large increase in price leads to only a slight reduction in the amount purchased, indicating that the demand curve is relatively steep.

Question 8

If the income-consumption path slopes upward,then
A) Both goods are normal goods
B) Both goods are inferior goods
C) The goods are substitutes
D) The goods are complements

Accepted Answer

When the income-consumption path slopes upward, it means that as the individual's income increases, the consumption of both goods also increases. This is a typical characteristic of normal goods, which are goods with a positive income elasticity of demand. When the income of consumers increases, their demand for normal goods also increases, leading to an upward-sloping income-consumption path. Therefore, the best choice is A) Both goods are normal goods.

Question 9

If an increase in the price of one good causes the demand curve for another good to shift to the right,then the two goods are
A) Substitutes
B) Complements
C) Normal
D) Unrelated

Accepted Answer

If an increase in the price of one good causes the demand curve for another good to shift to the right, it implies that the two goods are substitutes. This is because an increase in the price of one good will make consumers switch to a similar good that they can buy at a lower price. As a result, the demand for the lower-priced substitute will increase, causing a shift in its demand curve to the right.

Question 10

If two goods are substitutes,then an increase in the price of one will cause
A) A leftward shift of the demand curve for the other good
B) A rightward shift of the demand curve for the other good
C) A movement up and to the left along the demand curve for the other good
D) A movement down and to the right along the demand curve for the other good

Accepted Answer

When two goods are substitutes, an increase in the price of one good makes the other good more attractive to consumers, leading to an increase in demand for the substitute good. This is represented by a rightward shift of the demand curve for the other good.

Question 11

-Refer to Figure 5.6.Which diagram shows an increase in income with both bread and soup being normal goods?
A) A
B) B
C) C
D) D

Accepted Answer

An increase in income for normal goods shifts the budget line outward, indicating that more of both goods can be purchased. Diagram A shows this outward shift.

Question 12

A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed)is called
A) A price-consumption curve
B) The Engel curve
C) An income-consumption curve
D) A budget line

Accepted Answer

The Engel curve plots the relationship between income and the quantity of a good consumed, assuming all other factors remain constant. The other options are not correct: a price-consumption curve shows how the quantity consumed of one good changes as the price of that good changes, holding other factors constant; an income-consumption curve shows the effect of a change in income on the consumption of both goods in a two-good model; and a budget line displays the different combinations of two goods that can be purchased with a given income and set of prices.

Question 13

In Canada provincial regulatory boards set tiered prices for electricity.These tiered prices lead to budget lines that are
A) Upward-sloping
B) Kinked
C) Horizontal at a specific level of electricity consumption
D) Vertical at a specific level of electricity consumption

Accepted Answer

Tiered pricing results in a kinked budget line because the price changes abruptly once a certain consumption threshold is reached. Below the threshold, the price is relatively low and above the threshold, the price is relatively high. This creates a kink in the budget line at the consumption level where the price changes.

Question 14

-Refer to Figure 5.6.Which diagram shows an increase in income with bread being inferior and soup being normal?
A) A
B) B
C) C
D) D

Accepted Answer

In diagram C, as income increases, the consumption of bread (inferior good) decreases while the consumption of soup (normal good) increases. This is consistent with the characteristics of inferior and normal goods in response to income changes.

Question 15

Suppose that books are measured on the horizontal axis and CD's are measured on the vertical axis.As long as the law of demand holds for books,than an increase in the price of books will generate a price-consumption path that traces a path
A) To the left
B) To the right
C) Upward
D) Downward

Accepted Answer

According to the law of demand, as the price of a product increases, the quantity demanded for that product decreases. Therefore, an increase in the price of books will lead to a decrease in the quantity demanded, which will be reflected by a leftward movement along the horizontal axis on the price-consumption path.

Question 16

When a good is normal,
A) An increase in income raises consumption at each price, so the demand curve shifts to the left
B) An increase in income raises consumption at each price, so the demand curve shifts to the right
C) A decrease in income lowers consumption at each price, so the demand curve shifts to the right
D) An increase in income lowers consumption at each price, so the demand curve shifts to the left

Accepted Answer

When a good is normal, an increase in income raises consumption at each price, so the demand curve shifts to the right. This is because consumers are willing and able to purchase more of the good at every price level due to their higher income.

Question 17

If a change in the price of one good does not cause a shift in the demand curve of another good,then the two goods are
A) Substitutes
B) Complements
C) Normal
D) Not related

Accepted Answer

When the change in the price of one good does not affect the demand curve of another good, it implies that the two goods are not related to each other. Therefore, choice D is the correct answer.

Question 18

Which of the following statements is true?
A) No good can be inferior at all levels of income
B) The income elasticity of demand is negative for normal goods
C) It is possible for a good to be inferior at all income levels
D) It is possible for all of the goods a consumer buys to be inferior

Accepted Answer

A normal good may become inferior at lower levels of income, but it cannot be inferior at all levels of income. This is because as income increases, demand for normal goods also increases, whereas demand for inferior goods decreases. Therefore, it is not possible for a good to be inferior at all income levels. Option B is not true because the income elasticity of demand is positive for normal goods. Option C is not true since we have already established that a good cannot be inferior at all income levels. Option D is not true because it is unlikely that all the goods a consumer buys will be inferior.

Question 19

-Refer to Figure 5.7.Which diagram best represents an income-consumption curve where soup is a normal good?
A) A
B) B
C) C
D) D

Accepted Answer

The income-consumption curve for a normal good slopes upwards, indicating that as income increases, the consumption of the good also increases. Diagram C shows this relationship, as the curve moves upward to the right, reflecting an increase in the consumption of soup with an increase in income.

Question 20

-Refer to Figure 5.6.Which diagram shows a decrease in income with bread being normal and soup being inferior?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of 
-Refer to Figure 5.6.Which diagram shows a...

Quiz 5: Constraints, Choices, and Demand

If a good is normal,then the Engel curve

A curve that shows how the best available consumption bundle changes as income changes (holding the consumer's preferences and all other prices fixed) is called

If the income-consumption path slopes down,then

-Refer to Figure 5.7.Which diagram best represents an Engle curve where soup is a normal good?

If an increase in the price of one good causes the demand curve for another good to shift to the left,then the two goods are

-When the price elasticity of demand is large in magnitude,a ___ increase in the price leads to a _ reduction in the amount purchased and the demand curve is relatively ____.

-When the price elasticity of demand is small in magnitude,a ___ increase in the price leads to a _ reduction in the amount purchased and the demand curve is relatively ____.

If the income-consumption path slopes upward,then

If an increase in the price of one good causes the demand curve for another good to shift to the right,then the two goods are

If two goods are substitutes,then an increase in the price of one will cause

-Refer to Figure 5.6.Which diagram shows an increase in income with both bread and soup being normal goods?

A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed) is called

In Canada provincial regulatory boards set tiered prices for electricity.These tiered prices lead to budget lines that are

-Refer to Figure 5.6.Which diagram shows an increase in income with bread being inferior and soup being normal?

Suppose that books are measured on the horizontal axis and CD's are measured on the vertical axis.As long as the law of demand holds for books,than an increase in the price of books will generate a price-consumption path that traces a path

When a good is normal,

If a change in the price of one good does not cause a shift in the demand curve of another good,then the two goods are

Which of the following statements is true?

-Refer to Figure 5.7.Which diagram best represents an income-consumption curve where soup is a normal good?

-Refer to Figure 5.6.Which diagram shows a decrease in income with bread being normal and soup being inferior?