ECON 303 Week 2

Suppose you can write generic supply and demand curves such that QS=A+BP and QD=D+CP. If firms produce more when price rises, B must be a. positive b. negative c. 0

a. positive

If a good is normal and its price decreases, a. the income effect will be positive and the substitution effect will be positive b. the income effect will be negative and the substitution effect will be negative c. the income effect will be positive and the substitution effect will be negative d. the income effect will be negative and the substitution effect will be positive

a. the income effect will be positive and the substitution effect will be positive

A decrease in demand is represented by a. a shift outward of the entire demand curve b. a shift inward of the entire demand curve c. a movement along the demand curve in a southeasterly direction d. a movement along the demand curve in a northwesterly direction

b. a shift inward of the entire demand curve

If a person's indifference curves can be represented by a straight line, the person views the goods as a. perfect substitutes b. perfect compliments c. compliments (but not perfect) d. substitutes (but not perfect)

a. perfect substitutes

With only two goods, if the income effect is in the same direction as the substitution effect then the good is a. normal b. inferior but not Giffen c. Giffen d. there is not enough information to answer

a. normal

Suppose a cup of coffee at the campus shop is $2.50 and a cup of hot tea is $1.25 and that a student's beverage budget is $20 per week. What is the algebraic expression of the budget? a. 20=2.5C+1.25T b. 20=2.5C c. 20=1.5T d. 20=1.25C+2.5C

a. 20=2.5C+1.25T

Which of the following will not cause a demand curve to shift position a. a doubling of the good's price b. a doubling of the price of a closely substitutable good c. a doubling of income d. a shift in preferences e. a doubling of both the price of X and the price of Y

a. a doubling of the good's price

Two good, X and Y, are called substitutes is a. an increase in Px causes more Y to be bought b. an increase in Px causes less Y to be bought c. an increase in Py causes less Y to be bought d. an increase in income causes both X and Y to be bought

a. an increase in Px causes more Y to be bought

Two goods, X and Y, are called compliments if a. an increase in Px causes more Y to be bought b. an increase in Px causes less Y to be bought c. an increase in Py causes less Y to be bought d. an increase in income causes more of both X and Y to be bought

b. an increase in Px causes less Y to be bought

Suppose an individual's MRS (of steak for beer) is 2:1. That is, at the current consumption choices he/she is willing to give up 2 beers to get an extra steak. Suppose that the price of steak is $1 and a beer is $.25, Then in order to increase utility the individual should a. buy more steak and less beer b. bur more beer and less steak c. continue with current consumption plans d. not enough information to answer the question

b. bur more beer and less steak

Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand, Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppor further that PDC<PDP. If PDC rises but it remains less than PDP then the consumtion of DC a. falls from a positive amount to zero b. falls from a positive amount to another positive amount c. rises d. stays at zero

b. falls from a positive amount to another positive amount

Suppose you can write generic supply and demand curves such that QS=A+BP and QD=D+CP. If the price must reach a certain level before firms apply anything, A must be a. positive b. negative c. 0

b. negative

If people like their goods in fixed proportions, the two goods are a. perfect substitutes b. perfect compliments c. compliments (but not perfect) d. substitutes (but not perfect)

b. perfect compliments

If bundle A lies on the indifference curve and bundle B lies to the right of the indifference curve, the individual a. prefers bundle A to bundle B b. prefers bundle B to bundle A c. enjoys bundle A and B equally d. must receive more of both - with bundle B

b. prefers bundle B to bundle A

If a good is normal and its price increases, a. the income effect will be positive and the substitution effect will be positive b. the income effect will be negative and the substitution effect will be negative c. the income effect will be positive and the substitution effect will be negative d. the income effect will be negative and the substitution effect will be positive

b. the income effect will be negative and the substitution effect will be negative

For an individual who consumes only two goods, X and Y, the opportunity cost of consuming one unit of X in terms of how much Y must be given up is reflected in a. the individual's marginal rate of substitution b. the slope of the individual's budget constraint c. the slope of the individual's indifference curve d. none of the above

b. the slope of the individual's budget constraint

If good X is a normal good and its price rises, then quantity demanded a. may or may not fall b. will always fall c. will always rise d. will remain unchanged

b. will always fall

Suppose a cup of coffee at the campus shop is $2.50 and a cup of hot tea is $1.25 and that the student's beverage budget is $20 per week. What is the market trade-off between coffee and tea? a. 1 coffee to 1 tea b. 2 coffee to 1 tea c. 1 coffee to 2 tea d. 2 coffee to 2 tea

c. 1 coffee to 2 tea

An increase in quantity demanded is represented by a. a shift outward of the entire demand curve b. a shift inward of the entire demand curve c. a movement along the demand curve in a southeasterly direction in response to a decline in the good's price d. a movement along the demand curve in a northeasterly direction in response to a decline in the good's price

c. a movement along the demand curve in a southeasterly direction in response to a decline in the good's price

The point of tangency between a consumer's budget constraint and his/her indifference curve represents a. complete satisfaction for the consumer b. the equivalence of prices the consumer pays c. constrained utility maximization for the consumer d. the least he/she can spend

c. constrained utility maximization for the consumer

If bundles of goods A and B lie on the same indifference curve, one can assume the individual a. prefers bundle A to bundle B b. prefers bundle B to bundle A c. enjoys bundle A and B equally d. bundle A contains the same goods as bundle B

c. enjoys bundle A and B equally

If the price of all goods increase by the same proportion as income, the quantity demanded of good X will a. decrease b. increase c. remain unchanged d. change in a way that cannot be determined from the given information

c. remain unchanged

An increase in an individual's income without changing relative prices will a. rotate the budget constraint about the X axis b. shift indifference curves outward c. shift the budget constraint outward in a parallel way d. rotate the budget constraint about the Y axis

c. shift the budget constraint outward in a parallel way

The market demand curve for any good is a. independent of individuals' demand curve for the good b. the vertical summation of the individuals' demand curves c. the horizontal summation of individuals' demand curves d. derived from the firm's marginal cost of production

c. the horizontal summation of individuals' demand curves

An individual's demand curve a. represents the various quantities that a consumer is willing to purchase of a good at various prices b. is derived from an individual's indifference curve map c. will shift if preferences, prices of other goods, or income change d. all of the above

d. all of the above

Indifference curves a. are non-intersecting b. are contour lines of a utility function c. are negatively sloped d. all of the above

d. all of the above

Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield a. a substitution effect and an income effect in opposite directions b. a substitution effect and an income effect in the same direction c. a substitution effect but no income effect d. an income effect but no substitution effect

d. an income effect but no substitution effect

The Richardian notion that of diminishing returns implies that a. as more input is used more output will be made b. as more input is used less output will be made c. as more input is used the increase in output will increase d. as more input is used the increase in output will decrease

d. as more input is used the increase in output will decrease

The X intercept of the budget constraint represents a. how much of good Y can be purchased if no good X is purchased and all income is spent b. how much of good X can be purchased if no good Y is purchased and all income is spent c. total income divided by the price of X d. b and c

d. b and c

"If an individual is to maximize the utility received from consumption, he/ she should spend all available income..." This statement assumes a. that savings is possible b. that the individual is not satiated in all goods c. that nor goods are inferior d. both a and b

d. both a and b

Suppose there are two good (X and Y). On a traditional graph of a budget line a tripling of all prices and incomes will a. alter the slope of the budget line only b. alter the slope of the budget line as well as the Y intercept c. alter the slope of the budget line as well as the X intercept d. leave the budget line unaltered

d. leave the budget line unaltered

If income doubles and the quantity demanded of good X more than doubles, then good X can be described as a a. substitute good b. complement good c. necessity d. luxury

d. luxury

The price of X falls, the budget constraint a. shifts outward in a parallel fashion b. shifts inward in a parallel fashion c. rotates outward about the X intercept d. rotates outward about the Y intercept

d. rotates outward about the Y intercept