Question

An income consumption curve shows what happens to the consumer's consumption of good X as nominal income increases and

Group of answer choices

the price of X falls.

the prices of X and Y stay constant.

the price of Y falls.

real income stays constant.

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Question 5 5 pts

If you were selling a product in a setting where incomes were rapidly rising, which of the 4 Engel curve slopes listed below would you prefer for your product?

Group of answer choices

–2

–10

+2

+10

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Question 7 5 pts

The substitution effect

Group of answer choices

is measured by observing movement around the original indifference curve labeled 1.

is measured on the graph above by the distance BC.

is always inversely related to the price change of the good.

conceptually holds real income constant so that the price effect alone is measured.

is described, in part, by all of the above.

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Question 8 5 pts

What is the market demand curve for the two consumers who have the following demand functions? 1) P = 60 – 1.2Q 2) P = 60 – 2Q.

Group of answer choices

P = 60 – 3.2Q

P = 120 – 3.2Q

P = 60 – .75Q

P = 60 – .8Q

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Question 9 5 pts

If the slope of a demand curve is constant, then as the price of X moves upward from zero, the price elasticity of X

Group of answer choices

increases.

decreases.

doesn't change since the slope is constant.

increases up to the midpoint of demand and then decreases.

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Question 10 5 pts

What is the point elasticity for the demand curve P = 100 – 4Q at the price of 20?

Group of answer choices

– .25

– 1.2

– 1

– .2

None of the above is correct.

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Question 11 5 pts

If you were in business and had the demand curve P = 100 – 4Q and your price was 30. Which of the following would definitely be a good strategy?

Group of answer choices

You should raise your price because your revenues would increase and you would be producing less.

You should lower your price to gain more revenue.

You should hold price where it is because you are profit maximizing now.

You do not have enough information to make any of the statements listed above.

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Question 13 4 pts

The curve labeled (a) is a(an)

Group of answer choices

income consumption curve.

price consumption curve

demand curve.

Engel curve

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Question 14 4 pts

Which is not a (price, quantity) coordinate point on the demand curve that is derived from the indifference curves and budget lines in the graph?

Group of answer choices

$0.39, 16

$0.56, 12

$1.00, 5

$0.81, 10

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Question 15 4 pts

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Question 17 4 pts

The substitution effect

Group of answer choices

is measured by observing movement around the original indifference curve.

is measured on the graph above by the distance DC.

is always inversely related to the price change of the good.

conceptually holds real income constant so that the price effect alone is measured.

is described, in part, by all of the above.

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Question 19 4 pts

In order to derive a market demand curve from individual demand curves it is necessary to

Group of answer choices

vertically sum the individual demand curves.

horizontally sum the individual demand curves.

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Question 20 4 pts

If the slope of a demand curve for good X is constant, then the price elasticity of the good

Group of answer choices

Increases as the price falls.

Decreases as the price falls.

Has a constant elasticity.

Increases up to the midpoint of the demand curve and then begins to decrease.

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Question 21 4 pts

Which of the following is true about the determinants of elasticity?

Group of answer choices

If there are many substitutes for a good, the elasticity of that good will be higher than would otherwise be true.

Cars would tend to have more elastic demand curves than would toothpaste.

The longer the time period the more elastic the demand curve.

All of the above are true.

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Question 22 4 pts

If you were in the spring water business and had a self-service spring at which people could get water, what price would you charge if you knew that everyone was honest and would pay? (In other words, assume you have zero costs.)

Group of answer choices

some price on the elastic portion of the demand .

some price on the inelastic portion of the demand.

the price at the unitary point on the demand curve.

the highest price at which anyone would pay.

Answer 1

Answer 1: the prices of X and Y stay constant.

In the case of income consumption curve of the consumer, we assume that prices of good X and good Y remain constant.

Answer 2: +10.

The slope should increase because small change in income will lead to great change in the quantity demanded of the good as the slope of the curve increases. This leads to increase in revenue of the seller by a greater amount.

Answer 3: s always inversely related to the price change of the good.

The substitution effect of the good is always negatively related to the price of good. As price increases, substitution effect induces the consumer to consume less of the good and vice versa.

Answer 4: P = 120 – 3.2Q

The market demand curve is the addition of the demand curves of two individuals.