Problem Set 2

You usually take the bus to work and drives your car on weekends. However, due to falling oil prices, the marginal cost of driving to work on weekdays has fallen below the marginal cost of taking the bus on weekdays. The substitution effect tells us you should now: A)Drive to work on weekdays and continue to drive on weekends B)Continue to take the bus to work but drive less on weekends C)Take the bus to work and take the bus on weekends D)Maintain your current habits

A)Drive to work on weekdays and continue to drive on weekends

Which of the following are true about an individual's demand curve? A)It's a set of plans B)It's upward sloping C)It's also a rational individual's marginal benefit curve D)It describes a quantity demanded at each price

A)It's a set of plans B)It's also a rational individual's marginal benefit curve C)It describes a quantity demanded at each price

In early spring, many people are busy planning summer airline travel. However, a rise in landing fees that takes effect next year has led people to expect the price of all airline tickets to rise by 10%. This shifts the current demand curve for airline tickets: A)Not at all B)Left C)Right

A)Not at all (Price does not change demand)

In developing countries, direct cash transfers, where study participants are given cash to spend freely, are used to measure economic behavior. Many Tanzanian citizens purchase rice, a normal good, for dinner. If the citizens are given cash as a result of a direct cash transfer program, the income effect tells us they will likely: A)Purchase more rice B)Purchase less rice C)Continue their current habits D)Stop purchasing rice

A)Purchase more rice

Recently, governments have an increased preference for data-based policy design. This change in preference is likely to shift the demand curve for the number of data savvy professionals: A)Right B)Left C)Not at all

A)Right

Select all of the following that are results of congestion effects: A)A salmonella outbreak at a popular restaurant causes people to stop eating lunch at restaurant locations across the country B)People begin to bike instead of drive due to crowded roadways C)In the 1990's professionals began to use Microsoft software because many of their colleagues were using Microsoft software D)Because of the long line at Starbucks, people bring their own coffee to work

B)People begin to bike instead of drive due to crowded roadways D)Because of the long line at Starbucks, people bring their own coffee to work

You constructed the following table of the marginal benefit you receive from each mug you buy to drink coffee you previously purchased at home. Which of the following graphs represent your individual demand curve? Priority Your notes Marginal Benefit 1 (highest) If I buy one mug, I will use it to drink coffee each morning at home. The alternative is to buy coffee in a disposable cup which is more expensive. Buying a mug to use at home saves me $12 a month. $ 12 2 If I buy a second mug, I will also be able to offer my partner coffee in the morning. Without this mug, she would also buy coffee in a disposable cup. She doesn't drink coffee every morning, so this saves us $6 a month. $ 6 3 If I buy a third mug, I will be able to offer coffee to my friend who visits once a week. If I didn't have this third mug, I would buy my friend a coffee. The benefit of this third mug is about $2 a month. $ 2 4 (lower) If I buy a fourth mug in the style I like, I will have a complete set of all four season themes. There's no financial benefit to this, but there is a benefit because I like the look of all four mugs together on the shelf. If I had to quantify this benefit, I'd say personally it's worth about $1 per month to me. $ 1

C) Curve A

When the price of soda decreases, families consume more soda. Which graph illustrates this change? Graph B Graph A Graph C

C) Shift Along the Curve (Price does not change demand)

Like many students, your friends eat a steady supply of Ramen noodles, an inferior good. Your friends also enjoys meals from nearby restaurants, a normal good, but only eat there sparingly due to the cost. However, one of your friends recently acquired a job as a part-time grader. The income effect tells us this friend will: A) Eat less Ramen, eat at restaurants less frequently B)Eat more Ramen, eat at restaurants less frequently C)Eat less ramen, eat at restaurants more frequently D)Eat more Ramen, eat at restaurants more frequently

C)Eat less ramen, eat at restaurants more frequently

After the 2008 financial crisis, many consumers were displeased with GM for accepting bailout funds from the US government. This consumer displeasure is likely to shift the demand curve for GM vehicles: A)Not at all B)Right C)Left

C)Left

You are deciding how long your vacation should be. Instead of asking "how many days," she should apply the _________ principle and ask "should I take one more day off?" A)Opportunity Cost B)Cost-Benefit C)Marginal D)Connectedness

C)Marginal

Your individual demand curve is also your individual: A)Marginal cost curve B)Net benefit curve C)Marginal benefit curve D)Net cost curve

C)Marginal benefit curve

For 1-ply toilet paper (an inferior good), an increase in an individual's income would: A)Shift their demand curve right B)Do nothing to their demand curve C)Shift their demand curve left

C)Shift their demand curve left

Recently, music-festivals have become popular in cities across America. Larger festivals, such as Austin City Limits or Boston Calling attract more attendees which means they attract more bands which helps them attract more attendees. By contrast, other, less attended festivals fail to attract bands and attendees. Larger music festivals are benefitting from: Network effects Congestion effects Income effects Changes in consumer preferences

Network effects

Recently, Millennials became the largest demographic group in the US. Their increasing disposable income is likely to shift the demand curve for Kendrick Lamar's and Beyonce's music (we assume most Millennials enjoy Beyonce and Kendrick Lamar): Left Right Not at all

Right

Downward-sloping demand means individuals experience diminishing marginal benefits as quantity consumed increases (for most things). True False

True