Quiz 7 Demand Curves Part 2
Goods X and Y are substitutes if A. an increase in the price of good Y causes a decrease in the consumption of good X. B. a decrease in the price of good X causes a decrease in the consumption of good Y. C. a decrease in the price of good X causes an increase in the consumption of good Y. D. an increase in the price of good X causes a decrease in the consumption of good Y.
B
Goods X and Y are complements if A. an increase in the price of good X causes an increase in the consumption of good Y. B. an increase in the price of good Y causes an increase in the consumption of good X. C. a decrease in the price of good X causes an increase in the consumption of good Y. D. a decrease in the price of good X causes a decrease in the consumption of good Y.
C
If the law of demand holds for an inferior good, A. then the income effect of a price change is greater than the substitution effect. B. then there is no income effect of a price change. C. then the substitution effect of a price change is greater than the income effect. D. then the income effect of a price change reinforces the substitution effect.
C
Which of the following statements is correct? A. The substitution effect of a price change is qualitatively different for normal and inferior goods. B. For an inferior good, the substitution effect of a price decrease is to consume less of the good. C. For an inferior good, the substitution effect of a price increase is to consume more of the good. D. For an inferior good, the substitution effect of a price decrease is to consume more of the good.
D
T/F: Assume that Y is a normal good and the price of good X changes. If X and Y are substitute goods, the income effect of the price change on Y is greater than the substitution effect.
False
T/F: The income effect of a price change reinforces the substitution effect for an inferior good.
False
Which of the following statements is (are) correct? (Check all that apply.) I. For a Giffen good, the income effect of a price change would be greater than the substitution effect. II. The law of demand would not hold for a Giffen good. III. Economists have found numerous real world examples of Giffen goods. IV. All Giffen goods must be inferior goods, but not all inferior goods must be Giffen goods.
I, II, IV
Which of the following statements is (are) correct? (Check all that apply.) I. Indifference curves for all substitute goods are linear. II. Indifference curves for all complementary goods are L-shaped. III. Charcoal grills and gas grills are substitute goods. IV. Milk and cookies are complementary goods.
III, IV
T/F: Assume that Y is a normal good and the price of good X changes. If X and Y are complementary goods, the income effect of the price change on Y is greater than the substitution effect.
True
T/F: The income effect of a price change reinforces the substitution effect for a normal good.
True