Chapter 4 Individual and Market Demand 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.

c. goods A and B are substitutes.

d. goods A and B are complements.

e. none of the above.

3. An individual demand curve can be derived from the curve.

a. price-consumption

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.

5. Consider two goods X and Y available for consumption. Assume that the price of X changes while the price of Y

remains fixed. For these two goods, the price-consumption curve illustrates the

a. relationship between the price of X and consumption of Y.

b. utility-maximizing combinations of X and Y for each price of X.

c. relationship between the price of Y and the consumption of X.

d. utility-maximizing combinations of X and Y for each quantity of X.

6. The curve in the diagram below is called

a. the price-consumption curve.

b. the demand curve.

c. the income-consumption curve.

d. the Engel curve.

e. none of the above.

7. The curve in the diagram below is called:

a. the price-consumption curve.

b. the demand curve.

c. the income-consumption curve.

d. the Engel curve.

e. none of the above.

8. If an Engel curve has a positive slope

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:

120 = Qa + 4Qb

How much Qa will Dana consume to maximize utility?

a. 0

b. 24

c. 30

d. 60

e. More information is needed to answer this question.

10. Good A is a normal good. The demand curve for good A:

a. slopes downward.

b. usually slopes downward, but could slope upward.

c. slopes upward.

d. usually slopes upward, but could slope downward.

11. For an inferior good, the income and substitution effects

a. work together.

b. work against each other.

c. can work together or in opposition to each other depending upon their relative magnitudes.

d. always exactly cancel each other.

12. A Giffen good

a. is always the same as an inferior good.

b. is the special subset of inferior goods in which the substitution effect dominates the income

effect.

c. is the special subset of inferior goods in which the income effect dominates the substitution

effect.

d. must have a downward sloping demand curve.

14. Which of the following is true concerning the substitution 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.

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.

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.

a. more, more

b. more, less

c. less, more

d. less, less

17. Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person

buying ______ of the good and the income effect results in the person buying ______ of the good.

a. more, more

b. more, less

c. less, more

d. less, less

18. When a good is price inelastic, consumer expenditures on the good

a. increase when price increases.

b. decrease when price increases.

c. do not change when price increases.

d. are not related to price elasticity of demand.

19. When a good has a unitary price elasticity, consumer expenditures for the good

a. change in the same direction as a price change.

b. change in the opposite direction to a price change, but not necessarily by the same percentage

as the price change.

c. do not change when the price of the good decreases.

20. The difference between what a consumer is willing to pay for a unit of a good and what must be paid when

actually buying it is called

a. producer surplus.

b. consumer surplus.

c. cost benefit analysis.

d. net utility.