Micro Exam 2

If you are willing to give up 10 shirts for 5 pairs of pants and your level of satisfaction is unchanged, the marginal value of the pants is:

2

Carlos is originally consuming his optimal consumption bundle at point A when the price of gasoline falls. The movement of K1 to K2 reflects the _______ the decrease in the price of gasoline.

Substitution effect of

In order to isolate the substitution effect of a price increase, a consumer

must be given enough additional income to allow him to achieve his original indifference curve

As the price of good x increases, the budget line

pivots inward

If a rise in the price of good x causes the quantity demanded of good x to fall, then

the ordinary demand curve for good x is downward sloping

Economists use the term normal good to refer to goods that

you consume more of when your income rises

The price of a cup of cappuccino is $3, and the price of an apple is $1. Kristin's income is:

$60

The graph shows Nina's budget line and the optimal consumption bundle E. What is the price of movies in terms of CD's at point E?

.33

The price elasticity of demand for pizza when price decreases from $14 to $12 per pizza when income is $1000 per month is:

1.16

The price elasticity of demand for potatoes is estimated to be -1.3, and the quantity demanded of potatoes is 3000 bushels per week. In this situation a 4% rise in the price of potatoes would reduce the quantity demanded by

156 bushels per week

The price of a cup of cappuccino is $3 and the price of an apple is $1. Given her income and the prices of the two goods, Kristin can consume_____cappuccinos and _____ apples

15;15

The price elasticity of demand for electricity is -.4. By how much must the price of electricity decrease in order for sales to rise by 12%?

30%

Which of the following best describes the substitution effect caused by a price increase?

A change in consumption due to the fact that you will not buy goods whose marginal value is below the new price

Which of the following could lead to an optimal consumption bundle on indifference curve I3?

A decrease in the price of restaurant meals

Which of the following can be caused by a parallel, outward shift in the budget line?

A rise in the consumer's income

Suppose the price of a good rises. When will the resulting substitution effect reduce the quantity demanded of the good?

Always

If the substitution and income effects are in opposite directions, the law of demand will hold

As long as the substitution effect outweighs the income effect

Suppose the consumer is spending all of their income buying some of both goods. If the marginal value of x is greater than the relative price of x, how can the consumer improve his level of satisfaction?

By purchasing more of good x, less of good y

Which chart shows the effect of a decrease in income when both video games and e-books are normal goods?

C

Carlos is consuming his optimal consumption bundle at point A when the price of gasoline falls. The movement from K2 to K3 reflects the_____the decrease in the price of gasoline.

Income effect of

Carlos is consuming his optimal consumption bundle at point A when the price of gasoline falls. As Carlos moves to his new optimal consumption bundle, we observe that gasoline:

Is a normal good

How would a budget line be affected if income and both prices all simultaneously doubled?

It would not be affected

Ashyra could gain more utilityby choosing point_____, all other things held equal

J

Suppose the price of a good rises. When will the resulting income effect reduce the quantity demanded of good?

Only when a good is normal

If the income elasticity of a good is negative, then:

The Engel curve for good x must be downward sloping

Which of the following is not held constant when we use indifference-curve analysis to derive the Engel curve for good x?

The consumer's income

An outward, parallel shift in the budget line indicates that

The consumer's income has risen

The relative Price of good x in terms of y is always equal to:

The magnitude of the slope of the budget line

Suppose the consumer is at an optimum and spending all his income on good x. How are the marginal value of x and the relative price of x related at this corner solution?

The marginal value of x must be greater than or equal to the relative price of x

Carlos is consuming his optimal consumption bundle at point A when the price of gasoline falls. The dashed line is tangent to I1 shows a hypothetical budget line reflecting:

The new price of gasoline in terms of cell phone minutes and a change in income to keep Carlos on the original indifference curve

Suppose we examine how the consumer's optimum changes when the price of good x changes, while the consumer's tastes, income, and the price of all other goods are held constant. This procedure is used to derive:

The ordinary demand curve for good x

Consider the ordinary and compensated demand curves for a normal good. If the price of the good falls then

The ordinary demand curve will show the larger increase in quantity demanded

At a corner solution, which of the following is known to be true:

The slope of the indifference curve does not equal the slope of the budget line

The set of income-quantity pairs showing the amount of a good the consumer buys at various levels of income is called:

an Engel curve

When deriving an Engel curve, if the optimum point for good x lies to the left as income increases, good x is:

an inferior good

To construct an ordinary demand curve for good x

change the price of good x in the consumer choice diagram and observe the change in the quantity of good x among the optimum market basket

If the income elasticity of demand for a good is zero, then

consumption of the good does not change as income changes

When the price of a good rises, the resulting change in quantity demanded due solely to the decline in your income's purchasing power is called the:

income effect

A compensated demand curve contains no

income effects

When the price of a good rises, the resulting change in relative price causes the consumer to reduce his quantity demanded of that good, even when the consumer is income-compensated so that he remains indifferent about the price change. This observation is known as:

substitution effect