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Chapter 4
Study Guide
Multiple Choice
Multiple Choice
This activity contains 20 questions.
Assuming convex indifference curves for two goods, as the price of one good falls, a consumer will always
consume more of both goods. experience an increase in nominal income. reach a higher level of utility. All of the above.
Along an individual demand curve for food, which one of the following is not held constant?
The consumer's income. The consumer's level of utility. The price of all other goods. All of the above.
Suppose that the quantity of food is measured on the horizontal axis and the quantity of clothing is measured on the vertical axis. If the price consumption curve for food is vertical then
the demand for food is perfectly inelastic. the demand for food is unit elastic. the demand for clothing is perfectly inelastic. food is a Giffen good.
Which two variables are in the axes of a graph that shows an incomeconsumption curve?
The quantities of two goods. Income in one axis and the quantity of one good on the other. Income in one axis and the consumption of two goods in the other. The price and quantity of one good.
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its Engel curve will be negatively sloped. its demand curve will be positively sloped. its income effect will reinforce its substitution effect. All of the above.
Fill in the blanks. The substitution effect shows the change in consumption of a good associated with a __________ price and a _________ level of utility.
constant...changing changing...changing constant...constant changing...constant
Fill in the blanks. The income effect shows the change in consumption of a good associated with a _________ relative price and a _________ purchasing power.
constant...changing changing...constant constant...constant changing...changing
The income and substitution effects of a decrease in the price of an inferior good are such that
both effects contribute to an increase in quantity demanded. the substitution effect is positive but the income effect is negative. both effects contribute to a decrease in quantity demanded. the income effect is greater than the substitution effect.
Suppose that the substitution effect of a decrease in the price of food is the same for both Harry and Sally. However, Harry feels that food is an inferior good while Sally feels that food is a normal good. As a result,
Harry's demand curve for food will be steeper than Sally's. Harry's demand curve for food will be the same as Sally's. Harry's demand curve for food will be flatter than Sally's. there is not enough information to conclude anything.
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a larger income effect than substitution effect of a price decrease. All of the above.
When the price of food increases, Jimmy spends more of his fixed income on food than he did before. It must be true that Jimmy's demand for food
is relatively elastic. is unit elastic. is relatively inelastic. violates the law of demand.
The price of grapes is different each week at the supermarket. Yet, Marge spends exactly $10 on grapes each week. It must be true that Marge's demand for grapes
is perfectly inelastic. is perfectly elastic. is unit elastic. violates the law of demand.
Martha's demand for spring water has a price elasticity of 3.0. A recent tax that caused the price of spring water to increase by 20% will cause Martha to decrease her quantity demanded of spring water by
60%. 60 units. 3 units. 600%.
Greg, Bobby, and Peter are the only consumers of camera film in a certain small town. Greg's demand is Q = 100 2P. Bobby's demand is Q = 25 P. Peter's demand is Q = 75 7P. The market demand for film in that town is
Q = 10 100P. Q = 100 10P. Q = 200 10P. Q = 10 200P.
The market demand for photo film in a given town is Q = 500 10P where Q is measured as rolls of film developed per week and P is the price per roll. If the price is $5, how much is the consumer surplus in the market for film?
$10,125 $20,250 $11,250 $2,250
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Sam is willing to part with his old car for no less than $5,000. Bob likes the car and would pay as much as $8,000 for it. After lengthy negotiations, they agree on a price of $7,000. As a result of the deal, Bob will enjoy a consumer surplus equal to
$2,000. $500. $3,000. $1,000.
Suppose the demand for bridge crossings at a certain remote site is P = 100 2Q where Q is measured as crossings per year and P is measured as $ per crossing. What is the value to consumers of building a bridge at that site?
$100 $5,000 $2,500 $1,250
In response to a growth in demand, the quantity demanded of a good with a (mild) negative network externality
decreases as price decreases, so demand is upward sloping. sometimes rises and sometimes declines. rises but by less than it would without the externality. rises much more than it would without the externality.
Answer choices in this exercise appear in a different order each time the page is loaded.
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