Quiz 4: Individual and Market Demand

Figure 4.1.2 -Refer to Figure 4.1.2. The connection of points B and D forms: A) a demand curve. B) an income-consumption curve. C) a price-consumption curve. D) a shift from one demand curve.to another.

Figure 4.1.2 -Refer to Figure 4.1.2. From the information on the figure, we can obtain: A) an upward-sloping demand curve. B) two points on a downward-sloping individual demand curve. C) a downward-sloping market demand curve. D) a demand curve for food and clothing.

An individual demand curve can be derived from the ________ curve. A) price-consumption B) price-income C) income-substitution D) income-consumption E) Engel

Which of the following claims is true at each point along a price-consumption curve? A) Utility is maximized but income is not all spent. B) All income is spent, but utility is not maximized. C) Utility is maximized, and all income is spent. D) The level of utility is constant.

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.

Which of the following is true regarding utility along a price-consumption curve? A) It is constant. B) It changes from point to point. C) It changes only if income changes. D) It changes only for normal goods.

The income-consumption curve A) illustrates the combinations of incomes needed with various levels of consumption of a good. B) is another name for income-demand curve. C) illustrates the utility-maximizing combinations of goods associated with every income level. D) shows the utility-maximizing quantity of some good (on the horizontal axis) as a function of income (on the vertical axis).

Figure 4.1.3 -Refer to Figure 4.1.3 above. The connection of points A and B on the graph yields: A) a price-consumption curve. B) an income-consumption curve. C) an individual demand curve. D) an Engel curve.

Figure 4.1.3 -Refer to Figure 4.1.3 above. From the information on the figure we can derive: A) a price-consumption curve. B) two points on an individual demand curve. C) a shifting demand curve. D) an upward-sloping demand curve.

Figure 4.1.4 -Refer to Figure 4.1.4 above. The curves that connect points A and B on both graphs are: A) price-consumption curves. B) income-consumption curves. C) Engel curves. D) individual demand curves.

Figure 4.1.4 -Refer to Figure 4.1.4 above. Which of the following goods is an inferior good? A) Steak B) Hamburger C) Clothing D) Food

Figure 4.1.4 -Refer to question 4.1.4 above. Which goods are normal goods? A) Steak and hamburger B) Clothing, food and hamburger C) Clothing, food and steak D) Clothing and food

An Engel curve shows combinations of: A) income and prices. B) two goods, for different levels of income. C) two goods, for different levels of prices. D) income and the quantity consumed of one good.

An Engel curve is backward-bending when: A) the good is inferior after a certain level of income. B) the good is inferior at low levels of income. C) the good is inferior for all levels of income. D) the good is normal above a certain level of income.

An Engel curve: A) slopes upward for normal goods and downward for inferior goods. B) slopes upward for inferior goods and downward for normal goods. C) slopes upward for both normal and inferior goods. D) slopes downward for both normal and inferior goods.

Which of the following goods is an inferior good in the United States? A) Health care B) Entertainment C) Rental housing D) all of the above.

If an increase in the price of one good leads to an increase in the quantity demanded of another, the two goods are: A) substitutes. B) complements. C) independent. D) unrelated.

Figure 4.1.5 -Refer to Figure 4.1.5 above. In the downward-sloping portion of the curve that connects points A, B and D, the two goods, food and clothing, are: A) substitutes. B) complements. C) independent. D) unrelated.

Figure 4.1.5 -Refer to Figure 4.1.5 above. In the upward-sloping portion of the curve that connects points A, B and D, the two goods, food and clothing, are: A) substitutes. B) complements C) independent D) unrelated

In the diagram below, Marvin's optimal consumption bundles are indicated for five different budget constraints. Sketch the Engel curve for Marvin. Next, use the diagram to sketch Marvin's demand curve for the good on the horizontal axis.

Melissa's optimal consumption is indicated in the diagram below for three different income levels. For Melissa are park visits a normal or inferior good? Explain your answer.

Using the table below, construct an Engel Curve for each beer type.

After a good falls in price, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now relatively more expensive. This fact is called: A) the income effect. B) the substitution effect. C) the wealth effect. D) the price effect.

After a good falls in price, consumers are better off because they can buy the same amount of the good for less money, and thus have money left over for additional purchases. This fact is called: A) the income effect. B) the substitution effect. C) the wealth effect. D) the price effect.

The response to a change in the relative prices of goods is called: A) the income effect. B) the substitution effect. C) the wealth effect. D) the price effect.

The change in demand resulting from this change in real purchasing power is called: A) the income effect. B) the substitution effect. C) the wealth effect. D) the price effect.

Figure 4.2.1 -Refer to Figure 4.2.1 above. Which of the following moves represents the substitution effect? A) The move from F₁ to E B) The move from E to F₂ C) The move from F₁ to F₂ D) A move from F₁ to F₂ and then to E

Figure 4.2.1 -Refer to Figure 4.2.1 above. Which of the following moves represents the income effect? A) The move from F₁ to E B) The move from E to F₂ C) The move from F₁ to F₂ D) A move from F₁ to F₂ and then to E

Figure 4.2.1 -Refer to Figure 4.2.1 above. Starting at point A, which of the following moves represents the total effect of a price change? A) The move from F₁ to E B) The move from E to F₂ C) The move from F₁ to F₂ D) A move from F₁ to F₂ and then to E

A change in consumption of a good associated with a change in its price, with the level of utility held constant, is referred to as: A) the income effect. B) the substitution effect. C) the wealth effect. D) the total effect of a price change.

A change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant, is referred to as: A) the income effect. B) the substitution effect. C) the wealth effect. D) the total effect of a price change.

Figure 4.2.2 -Refer to Figure 4.2.2 above. Starting at point A, which of the following represents the substitution effect of an increase in the price of food? A) The move from A to B B) The move from A to C C) The move from A to B, and then to C D) The move from A to C, and then to B

Figure 4.2.2 -Refer to Figure 4.2.2 above. Starting from point A, after the price of food decreases,, the quantity of food purchased: A) increases, due to the income effect but decreases due to the substitution effect. B) increases, due to the substitution effect but decreases due to the income effect. C) increases from A to B due to the income effect, and then to C due to the substitution effect. D) decreases.

Figure 4.2.2 -Refer to Figure 4.2.2 above. The effect of a decrease in the price of food, as depicted in the figure, leads us to believe that: A) food in an inferior good and clothing a normal good. B) food in a normal good and clothing an inferior good. C) both food and clothing are normal goods. D) both food and clothing are inferior goods.

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.

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.

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

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

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.

Figure 4.2.3 -Refer to Figure 4.2.3 above. The effect of a decrease in the price of food, as depicted in the figure, leads us to believe that: A) food is an inferior good and clothing a Giffen good. B) food is a normal good and clothing a Giffen good. C) food is a Giffen good and clothing a normal good. D) food is a Giffen good and clothing an inferior good.

Scenario 4.1: Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3. -See Scenario 4.1. What is Daniel's budget constraint? A) 240 = 3Pc + 3Pd B) 240 = 3Qc + 3Qd C) 240 = (Pc)(Qc) D) 240 = (Qc)(Qd) E) none of the above

Scenario 4.1: Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3. -See Scenario 4.1. What is Daniel's income-consumption curve? A) Pc = Pd B) Pc = Qc C) Qd = I - 3Qc D) Qc = Qd E) all of the above

Scenario 4.1: Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3. -See Scenario 4.1. What quantity Qc will maximize Daniel's utility given the information above? A) 0 B) 24 C) 40 D) 60 E) none of the above

Scenario 4.1: Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3. -See Scenario 4.1. Holding Daniel's income and Pd constant at $240 and $3 respectively, what is Daniel's demand curve for cake? A) Qc = 240 - Pc B) Qc = 240/Pc C) Qc = 120/Pc D) Qc = 240/(3 + Pc) E) none of the above

You have just won a cash award of $500 for academic excellence. A) The substitution effect of this award will be larger than its income effect. B) The income effect of this award will be larger than its substitution effect. C) The substitution and income effects will be of identical size. D) It is impossible to know whether the substitution effect is larger than the income effect or vice versa.

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption. A) positive; positive B) positive; negative C) negative; positive D) negative; negative

Donald derives utility from only two goods, carrots (Qc) and donuts (Qd). His utility function is as follows: U(Qc,Qd) = (Qc)(Qd) The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Donald has an income (I) of $120 and the price of carrots (Pc) and donuts (Pd) are both $1. a. What is Donald's budget line? b. What is Donald's income-consumption curve? c. What quantities of Qc and Qd will maximize Donald's utility? d. Holding Donald's income and Pd constant at $120 and $1 respectively, what is Donald's demand curve for carrots? e. Suppose that a tax of $1 per unit is levied on donuts. How will this alter Donald's utility maximizing market basket of goods? f. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amount is levied on Donald. What is Donald's utility maximizing market basket? g. The taxes in (e) and (f) both collect exactly the same amount of revenue for the government, which of the two taxes would Donald prefer? Show your answer numerically and explain why Donald prefers the per unit tax over the lump sum tax, or vice versa, or why he is indifferent between the two taxes.

The horizontal summation of the demands of each consumer at different price levels is called: A) the market demand curve. B) the price elasticity of market demand. C) speculative demand. D) consumer surplus.

Figure 4.3.1 -Refer to Figure 4.3.1 above. The figure depicts the individual demands of the only three consumers in the market for good X. After constructing the market demand curve, we determine that quantity demanded at a price of $10.000 is: A) 15 units. B) 17 units. C) 30.000 units. D) none of the above

Figure 4.3.1 -Aggregation examples of market demand could include: A) the demand for home computers by households with or without children. B) the domestic and foreign demand for wheat. C) the demands of different demographic groups. D) all of the above

Figure 4.3.1 -Price elasticity of demand measures the: A) slope of the demand curve. B) sensitivity of quantity demanded to changes in the price of substitute goods. C) sensitivity of price to changes in the quantity demanded of substitute goods. D) sensitivity of quantity demanded to changes in price.

Figure 4.3.2 -Refer to Figure 4.3.2 above. How do total expenditures on movie tickets vary along the demand curve? A) Since quantity demanded increases as price decreases, total expenditures increase. B) Since the quantity is sold at lower and lower prices, total expenditures decrease as quantity demanded increases. C) Total expenditures remain the same between points along the demand curve. D) Total expenditures increase through the upper portion of the curve and then decrease at low price levels.

Figure 4.3.2 -Refer to Figure 4.3.2 above. The elasticity of the demand for the curve in the figure can be described as: A) elastic in the upper portions of the curve and inelastic in the lower portions. B) a special case of an isoelastic curve called the unit-elastic demand curve. C) elastic throughout the curve. D) inelastic throughout the curve.

When demand is inelastic, an increase in price leads to: A) an increase in total expenditures. B) a decrease in total expenditures. C) no change in total expenditures. D) an undetermined change in expenditures.

When demand is elastic, an increase in price leads to: A) an increase in total expenditures. B) a decrease in total expenditures. C) no change in total expenditures. D) an undetermined change in expenditures.

When demand is inelastic, an increase in price causes the seller's total revenues to: A) increase. B) decrease. C) remain the same. D) fall to zero.

When demand is elastic, an increase in price causes the seller's total revenue to: A) increase. B) decrease. C) remain the same. D) fall to zero.

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P -Use the information in Scenario 4.2. What is the price elasticity of demand if the price of artichokes is $10? A) 0 B) -0.25 C) -1 D) -4 E) negative infinity

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P -Use the information in Scenario 4.2. Suppose that the price of artichokes is increased slightly from $10. The total expenditure by consumers on artichokes will ________ and the number of artichokes sold will ________. A) rise; rise B) rise; fall C) fall; rise D) fall; fall

The domestic demand for wheat is Q_DD = 1000 - 25P, and the export demand is Q_DE = 500 - 25P. Graph the domestic, export, and total demand curves for wheat.

Fill in the blanks. Poorer countries have a ________ demand for U.S. wheat because they usually ________. A) less elastic; find other substitutes B) less elastic; can't find other substitutes C) more elastic; can't find other substitutes D) more elastic; find other substitutes

A local retailer has decided to carry a well-known brand of shampoo. The marketing department tells them that the quarterly demand by an average man is: Qd = 3 - 0.25P And the quarterly demand by an average woman is: Qd = 4 - 0.5P The market consists of 10,000 men and 10,000 women. How may bottles of shampoo can they expect to sell if they charge $6 per bottle? A) 20,000 B) 33,000 C) 25,000 D) 10,000 E) none of the above

General Motors estimates that U.S. demand for its newest product will be: Export demand will be The total market demand curve for this product will be a: A) straight line with a slope of -0.5. B) straight line with a slope of -1.0. C) kinked line with the kink at Q = 25,000. D) kinked line with the kink at P = 50,000. E) none of the above

Which of the following is an example of speculative demand? A) When the actual price of housing increases, the quantity demanded of housing decreases. B) When the expected price of housing increases, the demand for housing increases. C) When the price of home ownership increases, the demand for rental housing increases. D) When the demand for housing increases, the demand for house insurance increases.

A study of the per capita consumption of gasoline: in 10 countries demonstrates that: A) the consumption of gasoline does not appear to be related to the price of gasoline. B) higher gasoline prices do result in lower consumption of gasoline. C) higher gasoline prices actually increase the consumption of gasoline. D) higher gasoline prices reduce consumption in some of those countries, but not in others.

Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4. What happens if the government increases the federal gasoline tax? A) Consumer expenditures on gasoline increase over the short run and long run. B) Consumer expenditures on gasoline decline over the short run and increase over the long run. C) Consumer expenditures on gasoline increase over the short run and decline over the long run. D) Consumer expenditures on gasoline decrease over the short run and long run.

Joe's Pig Palace sells barbecue plates for $4.50 each, and serves an average of 525 customers per week. During a recent promotion, Joe cut his price to $3.50 and observed an increase in sales to 600 plates per week. a. Calculate Joe's arc price elasticity of demand. b. Joe is considering permanently lowering his price to $4.00 to increase revenue. How many plates should Joe expect to sell at the new price? Does the move make sense in the light of Joe's desire to increase revenue?

Harding Enterprises has developed a new product called the Gillooly shillelagh. The market demand for this product is given as follows: Q = 240 - 4P a. If the shillelagh is priced at $40, what is the point price elasticity of demand? Is demand elastic or inelastic? b. If the shillelagh price is increased slightly from $40, what will happen to the total expenditure on the Gillooly shillelagh?

Answer both parts of the following question. a. The San Francisco Chronicle reported that the toll on the Golden Gate Bridge was raised from $2 to $3. Following the toll increase, traffic fell by 5 percent. Based on this information, calculate the point price elasticity of demand. Is demand elastic or inelastic? Explain. b. Stephen Leonoudakis, chairman of the bridge's finance auditing committee, warned that the toll increase could cause toll revenues to decrease by $2.8 million per year. Is this statement consistent with economic theory? Explain.

The demand for telephone wire can be expressed as: Q = 6000 - 1,500P, where Q represents units, in pounds per day, and P represents price, in dollars per pound. Determine the price elasticity of demand at per pound.

Sally Henin has a price elasticity of demand for gasoline of -0.8. Her income elasticity for gasoline is 0.5. Sally's current income is $40,000 per year. Sally currently spends $800 per year on gasoline. The price of gasoline is currently $1.00 per gallon. a. A contemplated excise tax on gasoline will cause the price of gasoline to rise to $1.40. What impact will the tax have on Sally's consumption of gasoline? b. Since the purpose of the tax is only to discourage gasoline consumption, Congress is considering a $200 income tax rebate to lessen the burden of the gasoline tax. What impact will the rebates have on Sally's consumption of gasoline? c. Assume that both the tax and rebate are implemented. Will Sally be worse off or better off?

The world demand for power transmission wire is made up of both domestic and foreign demands. Thus, the total demand is the sum of the two sub-demands, which are given as: Domestic demand: P_d = 5 - 0.005Q_d Foreign demand: P_f = 3 - 0.00075Q_f, where P_d and P_f are in dollars per pound, and Q_d and Q_f are in pounds per day. a. Determine the world demand for power transmission wire. b. Determine the prices at which domestic and foreign buyers would enter the market. c. Determine the domestic and foreign quantities at per pound. Check to see if the sum of Q_d and Q_f equals Q. d. Determine total rate of purchases at per pound.

Suppose that the demand for artichokes (Q_a) is given as: Q_a = 120 - 4P a. What is the point price elasticity of demand if the price of artichokes is $10? b. Suppose that the price of artichokes increases to $12. What will happen to the number of artichokes sold and the total expenditure by consumers on artichokes? c. At what price if any is the demand for artichokes infinitely elastic?

The table below lists the demand curve for sleeves of tennis balls for each member of the Parker family. Use this information to determine the Parker's aggregate family demand for tennis balls. What is the price elasticity of demand for each member of the family at $2.00? What is the price elasticity of family aggregate demand at $2.00?

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.

The area below the demand curve and above the price line measures: A) consumer surplus. B) economic profit. C) elasticity of demand. D) the total value obtained from consuming the good or service.

Figure 4.4.1 -Refer to Figure 4.4.1 above. The value of consumer surplus when price is $4 equals: A) $21. B) $24. C) $45. D) none of the above

Figure 4.4.2 -Refer to Figure 4.4.2 above. The total weekly expenditure on pizza is: A) $1500. B) $2000. C) $3000. D) $3500.

Figure 4.4.2 -Refer to Figure 4.4.2 above. The consumer surplus derived from pizza consumption is: A) $1500. B) $2000. C) $3000. D) $3500.

Figure 4.4.3 -Refer to Figure 4.4.3 above. When the price of pizza is $20, total expenditure and consumer surplus are, respectively: A) $2000; $2000. B) $1000; $2000. C) $2000; $1000. D) $1000; $1000.

Figure 4.4.3 -Refer to Figure 4.4.3 above. When the price of pizza is $30, total expenditure and consumer surplus are, respectively: A) $1000; $500. B) $1500; $500. C) $1500; $250. D) $1000; $1000.

Figure 4.4.4 -Refer to Figure 4.4.4 above. The figure shows a family's demand for pollution reduction of nitrogen oxide. What occurs when the pollution authority proposes a reduction of 5 parts per 100 million (pphm)? A) The family would receive a surplus of $2500, but since the family is not willing to pay for such an initiative, their consumer surplus and expenditures are zero. B) The family would spend $1000 to receive 5 pphm of pollution reduction and gain some surplus. C) The family would make the necessary expenditures to clean up the pollution, but the government would keep the consumer surplus. D) The family is willing to pay $5000, and receive a value even larger than that, when 5 pphm of nitrogen oxide are cleaned up.

Figure 4.4.4 -Refer to Figure 4.4.4 above. A demand for clean air, like the one in the figure is: A) the actual demand in the market for tradable permits to pollute. B) a demand derived from the differences in the willingness to pay for housing in cleaner or dirtier cities. C) a demand approximately like the one estimated by the Environmental Protection Agency in the United States. D) only a hypothetical demand.

The aggregate demand for good X is Q = 20 - P. If the price rises from P = $4 to P = $5, what is the change in consumer surplus? A) $4.50 B) $5.50 C) $15.50 D) $16

The aggregate demand for good X is Q = 20 - P, and the market price is P = $8. What is the maximum amount that consumers are willing to pay for the quantity demanded at this price? A) $72 B) $96 C) $144 D) $168

The demand curve for the daily edition of the Lubbock Avalanche Journal is The current price of the newspaper is $0.50. Derive the Consumer Surplus for the newspaper.

The wheat market is perfectly competitive, and the market supply and demand curves are given by the following equations: QD = 20,000,000 - 4,000,000P QS = 7,000,000 + 2,500,000P, where QD and QS are quantity demanded and quantity supplied measured in bushels, and per bushel. a. Determine consumer surplus at the equilibrium price and quantity. b. Assume that the government has imposed a price floor at $2.25 per bushel and agrees to buy any resulting excess supply. How many bushels of wheat will the government be forced to buy? Determine consumer surplus with the price floor.

The market supply curve of rubber erasers is given by The demand for rubber erasers can be segmented into two components. The first component is the demand for rubber erasers by art students. This demand is given by The second component is the demand for rubber erasers by all others. This demand is given by Derive the total market demand curve for rubber erasers. Find the equilibrium market price and quantity. Also, determine the consumer surplus for each component of demand.

When network externalities are present: A) we can obtain the market demand curve simply by summing individuals' demands. B) one person's demand also depends on the demands of other people. C) a person's demand cannot be affected by the number of other people who have purchased the good. D) the social cost of production is larger than the private cost.

If the quantity of a good demanded by a typical consumer increases in response to the growth in purchases of other consumers, A) a negative network externality is present. B) a positive network externality is present. C) a network externality is absent. D) a network externality can be positive or negative.

The standardization of software applications that people can easily share is an example of: A) a positive network externality. B) a negative network externality. C) a network externality that can be positive or negative. D) an innovation that does not carry a network externality.

A positive network externality associated with a good: A) yields more intrinsic value than without it. B) yields more extrinsic value but less intrinsic value from its consumption. C) results in less intrinsic or extrinsic value. D) is not associated with the value of a good in any way.

Which of the following are examples of situations involving a positive network externality? A) A social network B) The bandwagon effect C) Toys and fads D) All of the above

When network externalities are present, the market demand for the good in question becomes: A) less elastic. B) more elastic. C) unit elastic. D) perfectly inelastic.

Figure 4.5.1 -Refer to Figure 4.5.1 above. When demand increases from #1 to D2, A) the pure price effect moves the market from A to B, and the externality effect from B to C. B) the pure price effect moves the market from B to C, and the externality effect from A to B. C) the pure price effect moves the market from A to C, and the externality effect from C to B. D) the pure price effect moves the market from A to B, and the externality prevents the move from B to C.

Figure 4.5.1 -The opposite of the bandwagon effect is: A) a positive network externality. B) the snob effect. C) a network externality, positive or negative. D) the substitution effect.

Figure 4.5.1 -Which of the following are examples of situations with negative network externalities? A) A crowded beach B) A rare work of art C) Clothing made to order D) All of the above

Figure 4.5.2 -Refer to Figure 4.5.2 above. When the snob effect is at work, a decrease in price causes: A) a move from A to B, and then to C B) a move from A to C, and then to B C) a move from A to B, and then from C to A D) an unpredictable change in quantity

Figure 4.5.2 -A negative network externality causes demand to become: A) more elastic. B) less elastic. C) unit elastic. D) perfectly inelastic.

Through their marketing and advertising efforts, companies try to: A) minimize the impact of the snob effect. B) augment the impact of the snob effect. C) increase the elasticity of their demands. D) increase price more than quantity sold.

Part of the reason for the success of Facebook is: A) a strong positive network externality. B) a strong negative network externality. C) the avoidance of a positive externality. D) the avoidance of a negative externality.

Some luxury product manufacturers will purposefully raise prices on their goods in order to reduce sales volume. This strategy may successfully increase sales revenue if the luxury goods are subject to the ________ effect and have relatively ________ demand. A) bandwagon; elastic B) bandwagon; inelastic C) snob; elastic D) snob; inelastic

Luxury brands like designer sun glasses are goods that may exhibit snob effects. Suppose this is true, and the price for a particular brand increases. What happens to the component changes in the quantity demanded? A) Pure price effect and snob effect are negative. B) Pure price effect and snob effect are positive. C) Pure price effect is positive, snob effect is negative. D) Pure price effect is negative, snob effect is positive.

Software companies continually work to develop new features of their products that make it easier for users to interact and share their work. As more of these features are embedded in the software, what happens to the individual demand curve for the software products? A) Demand curve becomes more elastic due to the bandwagon effect. B) Demand curve becomes less elastic due to the snob effect. C) Demand curve shifts, but its degree of elasticity does not change. D) There is no change in the individual demand curve.

Estimations of demand are used as input in this type of scenario: A) understanding automobile demand to decide whether to offer below-market-rate loans for new cars. B) understanding the demand for oil in order to impose a new oil import tax. C) as input into a firm's decision-making process. D) all of the above

When would it be plausible to describe the demand for a product by drawing a straight line, ? A) In the vast majority of scenarios B) Practically never C) Only if no important factors other than price affect demand D) If we believe that factors other than price alone determine demand

Figure 4.6.1 -Refer to Figure 4.6.1 above. The demand curves d₁, d₂ and d₃ are: A) an example of demand curves poorly estimated. B) demand curves that represent the change in variables other than price, such as income. C) demand curves for three different types of goods, which are then used to construct an aggregate demand curve. D) demand curves that depict the change in market price as time goes by.

Figure 4.6.1 -Refer to Figure 4.6.1 above. The demand curve, D is: A) the sum of demand curves d₁, d₂ and d₃. B) a demand curve that takes into account the changes in price and income. C) a demand curve that describes the same data used to draw curves d₁, d₂ and d₃. D) an example of a demand curve that takes into account many determinants of demand.

The advantage of an isoelastic demand curve is that: A) both price and income elasticities are constant along the curve. B) price elasticity is constant and income elasticity changes along the curve. C) income elasticity is constant and price elasticity changes along the curve. D) both price and income elasticity change along the curve.

Which of the following algebraic forms of a demand curve yields an isoelastic demand curve? A) Q = a - b log(P) + c log(I) B) Q = a - bP + cI C) log(Q) = a - b log(P) + c log(I) D) log(Q) = bP + cI

When a demand curve is expressed in log-linear form, such as log(Q) = a - b log(P) + b2 log(P2) + c log(I), the coefficients of the demand determinants correspond to: A) changes in determinants other than price. B) the elasticity values of those determinants. C) the parameters that may fluctuate in value. D) the independent variables in the model.

When demand is written as log(Q) = -0.23 - 0.34 log(P) + 1.33 log(I), the price elasticity of demand equals: A) -0.23 B) -0.34 C) -0.72 D) 1.33

In the demand equation log(Q) = a - b log(P) + b₂ log(P₂) + c log(I), where P is the price of the good in question, P₂ is the price of a second good and I is income, the second good must be: A) a normal good. B) an inferior good. C) a substitute for the good in question. D) a complement for the good in question.

Other things being equal, the lower the value of elasticity: A) the less likely the profitability of a price increase. B) the more likely the profitability of a price increase. C) the greater the responsiveness in quantity demanded to a price change. D) the lower the corresponding increase in firm revenue.

In recent years, the specification and estimation of demand curves have changed so that: A) analyses that used to be calculated in mainframe computers can now be carried out in a few seconds on a personal computer. B) the growth and complexity of markets make those analyses ever more complex and difficult to calculate with accuracy. C) the private sector often lacks the means or knowledge necessary for estimating demand relationships. D) marketing experts make frequent use of data, but its use for designing government policies has been diminishing.

When Post cereals, the producer of Grape Nuts (GN), was going to acquire Nabisco's Shredded Wheat (SW), Post wanted to know how a price increase in GN would affect profitability and whether to increase price before or after the merger. After fitting the log-linear function, log(QGN) = 1.998 - 2.085 log(PGN) + 0.62 log(I) + 0.14 log(PSW), Post cereals concluded that: A) The two cereals were close substitutes, so the lost revenue from an increase in the price of one would be recovered by the increased sales in the other. B) The cross-price elasticity confirmed that the two cereals were substitutes, but not close substitutes. C) There would be a large increase in the quantity demanded of Grape Nuts in response to an increase in the price of Shredded Wheat. D) The demand for Grape Nuts was both price and income inelastic.

Coupons and rebates are examples of: A) market incentives that may distort prices. B) direct market experiments. C) strategies that complicate the construction of a log-linear demand function. D) price distortions that prevent firms from learning about consumer behavior.

Using calculus, we measure marginal utility as the utility change that results from: A) a very small increase in consumption. B) a very large increase in consumption. C) an average increase in consumption. D) anything other than changes in consumption.

The marginal utility associated with the additional consumption of X is given by: A) the second derivative of the utility function with respect to good X. B) equal to total utility. C) the partial derivative of the utility function with respect to good X. D) the Lagrangian multiplier.

The analysis of utility maximization is carried out under the assumption of: A) increasing marginal utility. B) diminishing marginal utility. C) diminishing total utility. D) a constant rate of marginal utility.

The technique of constrained optimization can be used to describe: A) the conditions that must hold if the consumer is maximizing utility. B) the conditions that may prevent the consumer from maximizing utility. C) the conditions that may lead to an increase or decrease in marginal utility. D) the best use of a given amount of income.

A mathematical technique used to solve constrained optimization problems (finding the consumer optimum, for example) is: A) the method of Lagrange multipliers. B) the Cobb-Douglas method. C) the Slutsky method. D) the Hicks substitution method.

Figure 4.7.1 -Refer to Figure 4.7.1 above. Which of the expressions in the figure is the Lagrangian? A) A B) B C) C D) D

Figure 4.7.1 -Refer to Figure 4.7.1 above. Each good will be consumed up to the point at which the marginal utility from consumption is a multiple of the price of the good. Which of the expressions in the figure best describes this statement? A) A B) B C) C D) D

Figure 4.7.2 -Refer to Figure 4.7.2 above. Which of the expressions in the figure represents the equal marginal principle? A) A B) B C) C D) D

Figure 4.7.2 -Refer to Figure 4.7.2 above. Which expression leads us to conclude that the Lagrange multiplier is the extra utility that results from an extra dollar of income, and that result happens to be equal to lambda? A) A B) B C) C D) D

Figure 4.7.2 -Refer to Figure 4.7.2 above. Which of the expressions in the figure represents the marginal rate of substitution, MRS_XY? A) A B) B C) C D) D

The dual approach to the consumer's problem consists in finding: A) the highest indifference curve that just touches the budget line. B) the maximum income required to achieve a given level of utility. C) the least-cost budget line required to achieve a given level of utility. D) all of the above

An alternative way of looking at the consumer's utility maximization decision is called duality in consumer theory, which consists in: A) looking at the optimum in consumption in terms of setting the marginal utilities equal to the ratio of prices rather than looking at the point where an indifference curve is tangent to a budget line. B) choosing the lowest budget line that touches a given indifference curve rather than choosing the highest indifference curve, given a budget constraint. C) constructing a Lagrangian multiplier instead of focusing on the equal marginal principle. D) decomposing the effects of a price change on consumption, without recourse to budget lines.

The Slutsky equation is a formula for: A) maximizing total utility, subject to a budget constraint. B) calculating the marginal utility of income. C) calculating the marginal utility of the last dollar spent on one good or another. D) decomposing the effects of a price change into substitution and income effects.

Figure 4.7.3 -Refer to Figure 4.7.3. According to the Hicksian substitution effect, A) the decrease in the price of food does not take the consumer to a higher budget line. B) without drawing the corresponding indifference curve, it is difficult to tell if the consumer would be equally well off at points A and B. C) indifference curves are not required to assert that, in this figure, the consumer is equally well off at points A or B. D) the dashed budget line is an improper construct of the traditional substitution effect.