Chapter 4 Individual and Market Demand 6.

The curve in the diagram below is called

1. Moving down along a demand curve for apples

a. consumer well-being decreases.

b. the marginal utility of apples decreases.
c. the marginal utility of apples increases.
d. both (a) and (b) are true.
e. both (a) and (c) are true.
2. The price of good A goes up. As a result the demand for good B shifts to the left. From this we can infer that:

a. good A is a normal good.

b. good B is an inferior good.
a. the price-consumption curve.
c. goods A and B are substitutes.
b. the demand curve.
d. goods A and B are complements.
c. the income-consumption curve.
e. none of the above.
d. the Engel curve.
3. An individual demand curve can be derived from the curve.
e. none of the above.
a. price-consumption
7. The curve in the diagram below is called:
b. price-income
c. income-substitution
d. income-consumption
e. Engel curve
4. Which of the following is true regarding income along a price consumption curve?

a. Income is increasing.
b. Income is decreasing.
c. Income is constant.
d. The level of income depends on the level of utility.
a. the price-consumption curve.
5. Consider two goods X and Y available for consumption. Assume that the price of X changes while the price of Y
b. the demand curve.
remains fixed. For these two goods, the price-consumption curve illustrates the
c. the income-consumption curve.
a. relationship between the price of X and consumption of Y.
d. the Engel curve.
b. utility-maximizing combinations of X and Y for each price of X.
e. none of the above.
c. relationship between the price of Y and the consumption of X.
8. If an Engel curve has a positive slope
d. utility-maximizing combinations of X and Y for each quantity of X.
a. both goods are normal.
b. the good on the horizontal axis is normal
c. as the price of the good on the horizontal axis increases, more of both goods in consumed.
d. as the price of the good on the vertical axis increases, more of the good on the horizontal axis is
consumed.
9. The income-consumption curve for Dana between Qa and Qb is given as: Qa=Qb. His budget constraint is given as: 16. Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person
buying ______ of the good and the income effect results in the person buying ______ of the good.
120 = Qa + 4Qb
a. more, more
How much Qa will Dana consume to maximize utility?
b. more, less
a. 0
c. less, more
b. 24
d. less, less
c. 30
d. 60
17. Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person
e. More information is needed to answer this question.
buying ______ of the good and the income effect results in the person buying ______ of the good.
10. Good A is a normal good. The demand curve for good A:
a. more, more
a. slopes downward.
b. more, less
b. usually slopes downward, but could slope upward.
c. less, more
c. slopes upward.
d. less, less
d. usually slopes upward, but could slope downward.
18. When a good is price inelastic, consumer expenditures on the good
11. For an inferior good, the income and substitution effects
a. increase when price increases.
a. work together.
b. decrease when price increases.
b. work against each other.
c. do not change when price increases.
c. can work together or in opposition to each other depending upon their relative magnitudes.
d. are not related to price elasticity of demand.
d. always exactly cancel each other.
19. When a good has a unitary price elasticity, consumer expenditures for the good
12. A Giffen good
a. change in the same direction as a price change.
a. is always the same as an inferior good.
b. change in the opposite direction to a price change, but not necessarily by the same percentage
b. is the special subset of inferior goods in which the substitution effect dominates the income
as the price change.
effect.
c. do not change when the price of the good decreases.
c. is the special subset of inferior goods in which the income effect dominates the substitution
20. The difference between what a consumer is willing to pay for a unit of a good and what must be paid when
effect.
actually buying it is called
d. must have a downward sloping demand curve.
a. producer surplus.
14. Which of the following is true concerning the substitution effect of a decrease in price?
b. consumer surplus.
a. It will lead to an increase in consumption only for a normal good.
c. cost benefit analysis.
b. It always will lead to an increase in consumption.
d. net utility.
c. It will lead to an increase in consumption only for an inferior good.
d. It will lead to an increase in consumption only for a Giffen good.
15. Which of the following is true concerning the income effect of a decrease in price?

a. It will lead to an increase in consumption only for a normal good.

b. It always will lead to an increase in consumption.
c. It will lead to an increase in consumption only for an inferior good.
d. It will lead to an increase in consumption only for a Giffen good.