# Quiz 3: Demand Theory

Business

Q 1Q 1

A budget constraint defines the:
A)odds of earning a particular income.
B)consumer's preference ordering.
C)funds allocated for a particular purpose.
D)attainable consumption bundles.

Free

Multiple Choice

D

Q 2Q 2

Mr. Inflexible's utility function is U(x

_{1},x_{2})= min(x_{1},x_{2}). The price of x_{1}_{ }is $1, the price of x_{2}_{ }is $2, and Mr. Inflexible's budget is $120. His utility maximizing consumption bundle is: A)(20, 40). B)(20, 50). C)(40, 40). D)(60, 30).Free

Multiple Choice

D

Q 3Q 3

Along an individual demand curve for food, which one of the following is not held constant?
A)the consumer's utility function
B)the consumer's level of utility
C)the consumer's income
D)the price of all other goods

Free

Multiple Choice

A

Q 4Q 4

This consumer's utility maximizing consumption bundle is what point in Figure 3A?
A)A
B)B
C)C
D)D

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Multiple Choice

Q 5Q 5

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of X_{2 }is $5. Her budget line intersects the x_{2 }axis at consumption bundle: A)(0, 24). B)(0, 12). C)(24, 0). D)(12, 0).Free

Multiple Choice

Free

Multiple Choice

Q 7Q 7

Price elasticity of demand for a product tends to be greater:
A)the lower its price.
B)the more broadly the product is defined.
C)the closer substitutes are for it.
D)the less close substitutes are for it.

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Multiple Choice

Q 8Q 8

Bonnie spends her entire income, $200 on 3 goods, x

_{1}, x_{2}_{ }and x_{3}. When p_{1}_{ }= $1, p_{2}_{ }= $3, and p_{3}_{ }= $5, she buys the following consumption bundle: (15, 20, 25). The price of x_{1}_{ }increases by 25%, and she now buys 15 units of x_{2}_{ }and 28 units of x_{3}. Which of the following is not true? A)the price elasticity of demand for x_{1 }is one B)x_{1 }is a Giffen good C)total revenue for x_{1 }is maximized D)total expenditure on x_{1 }is unchangedFree

Multiple Choice

Q 9Q 9

If good x

_{1}_{ }is a substitute for good x_{2,}_{ }then the cross price elasticity of demand for x_{1}_{ }with respect to the price of x_{2}_{ }is: A)zero. B)negative. C)positive. D)undefined.Free

Multiple Choice

Q 10Q 10

In January a severe frost destroyed 1/3 of the American orange crop, and growers anticipated bankruptcy. By year's end, however, they realized that their profits were larger than ever. Which of the following could not explain this curious result?
A)There was a similar frost in exporting countries.
B)The demand for oranges shift to the left.
C)The demand for oranges shifted to the right.
D)The demand for oranges is price inelastic.

Free

Multiple Choice

Q 11Q 11

If two linear demand functions intersect the quantity axis at the same point, then:
A)when prices are equal, so are the elasticities.
B)when quantities are equal, so are the price elasticities.
C)when prices are equal, so are the quantities.
D)at the point of intersection the two elasticities are equal to one.

Free

Multiple Choice

Q 12Q 12

Hamburger University is losing $4 million dollars per year. The trustees of the university want to increase fees to cover the deficit. The president of the student body wants to decrease fees to cover the deficit. On the basis of this information, which of the following is true?
A)The trustees think demand is price elastic, and the president of the student body thinks it is price inelastic.
B)Both the trustee and president of the student body think the price elasticity of demand is one.
C)The trustees think demand is price inelastic, and the student body president thinks it is price elastic.
D)There is no disagreement with respect to elasticity.

Free

Multiple Choice

Q 13Q 13

Joseph's utility function is given by x

_{A}_{ }+ 2x_{B}, where x_{A}_{ }denotes his consumption of apples and x_{B}his consumption of bananas. If a banana cost 50 cents and an apple costs also 50 cents, how many apples will he buy if his income is $10? A)20 B)10 C)0 D)5Free

Multiple Choice

Q 14Q 14

Excise taxes are imposed when society's primary objective is to:
A)encourage behaviour.
B)change preferences.
C)raise revenue.
D)discourage behaviour.

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Multiple Choice

Q 15Q 15

Joseph's utility function is given by x

_{A}_{ }+ 2x_{B}, where x_{A}_{ }denotes his consumption of apples and x_{B}his consumption of bananas. Suppose a banana cost 50 cents and an apple costs also 50 cents. If his income is $10, then his consumption bundle (x_{A,}x_{B})is: A)(20,40). B)(20,20). C)(0,20). D)(20,0).Free

Multiple Choice

Q 16Q 16

Richie's demand function for comic books is x = 30 - 10p where p is the price in dollars and x is the quantity he demands. If the price of comic books is $0.5, what is Richie's price elasticity of demand for comic books?
A)- 10
B)- 1/3
C)- 1/10
D)- 1/5

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Multiple Choice

Q 17Q 17

A negative sloped income consumption line indicates that:
A)one of the goods is a Giffen good
B)the two goods are substitutes
C)the two goods are complements
D)one of the goods is normal and the other is inferior.

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Multiple Choice

Q 18Q 18

This consumer's utility maximizing consumption bundle is illustrated in Figure 3A. Which assumption about consumer preferences guarantees it is not point B?
A)continuity
B)transitivity
C)nonsatiation
D)completeness

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Multiple Choice

Q 19Q 19

Which of the following is true about the goods in Figure 3A?
A)x

_{1}_{ }is an inferior and x_{2}_{ }is a normal good. B)x_{1 }is a normal and x_{2 }is an inferior good. C)Both x_{1 }and x_{2 }are normal goods. D)Both x_{1 }and x_{2 }are inferior goods.Free

Multiple Choice

Q 20Q 20

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of x_{2 }is $5. If her indifference curves exhibit a diminishing marginal rate of substitution and if her marginal rate of substitution at bundle (7, 10)is 1, then her utility maximizing bundle is: A)(7, 10). B)(6, 12). C)on the budget line to the left of (7, 10). D)on the budget line to the right of (7, 10).Free

Multiple Choice

Q 21Q 21

When consumers join a club, or a cooperative pays for a project, the individuals involved:
A)move to a higher indifference curve.
B)move to a lower indifference curve.
C)may move or remain depending on the prices of other goods.
D)remain on the same indifference curve.

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Multiple Choice

Q 22Q 22

Ron's utility function is given by U(x,y)= min[x,y]. If the price of x is 2 and the price of y is 1 and if Ron's preferred consumption bundle is [4,4], then his income is:
A)16.
B)10.
C)14.
D)12.

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Multiple Choice

Q 23Q 23

Constraints in the theory of consumer behaviour:
A)have no bearing on choices individuals make.
B)are the only influence on consumer choices.
C)are measurable in principle.
D)restrict choices.

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Multiple Choice

Q 24Q 24

Mr. Inflexible's utility function is U(x

_{1},x_{2})= min(x_{1,}x_{2}). The price of x_{1 }is $1, the price of x_{2 }is $2, and Mr. Inflexible's budget is $120. If Mr. Inflexible were given the choice between a lump- sum tax and an excise tax which raised the same amount of tax revenue, then: A)he would prefer the excise tax. B)he would prefer the lump- sum tax. C)he would be indifferent between them. D)one cannot say which tax he would prefer.Free

Multiple Choice

Q 25Q 25

Suppose your income doubled and, at the same time, the prices of all goods doubled. Suppose you continue to purchase exactly the same bundle as before. What would the law of demand suggest about this behaviour?
A)Reasonable, because the relative price did not change.
B)Uncertain, because we don't know if the goods you purchase are normal or not.
C)Once you have a chance to adjust, you will purchase the low cost goods.
D)Not possible, because when the price goes up the quantity demanded always falls.

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Multiple Choice

Q 26Q 26

If goods A and B are complements:
A)the own price elasticity may be superior.
B)a decrease in the price of B causes the demand for A to increase.
C)they are also substitutes.
D)an increase in the price of A causes the demand for B to increase.

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Multiple Choice

Q 27Q 27

Joe consumes just two goods, x

_{1}_{ }and x_{2}_{ }and both are inessential. His indifference curves are convex. Joe will buy a positive quantity of x_{1}_{ }if: A)MRS(0, M/p_{2})> p_{1}/p_{2}. B)MRS(0, M/p_{2})= p_{1}/p_{2}. C)MRS(0, M/p_{2})< p_{1}/p_{2}. D)MRS(M/p_{1}, 0)< p_{1}/p_{2}.Free

Multiple Choice

Q 28Q 28

For an inessential good, which of the following is true?
A)Quantity demanded is always zero.
B)Quantity demanded is negative.
C)Quantity demanded is always positive.
D)Quantity demanded can be either positive or zero.

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Multiple Choice

Q 29Q 29

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of X_{2 }is $5. The consumption bundle (4, 18)is: A)well defined. B)an unattainable bundle. C)an attainable bundle. D)on the budget line.Free

Multiple Choice

Q 30Q 30

Given that the government wishes to raise a certain amount of tax revenue, individuals prefer:
A)a 100% lump sum tax.
B)a combination of a 70% excise tax and a 30% lump sum tax.
C)a combination of a 30% excise tax and a 70% lump sum tax.
D)a 100% excise tax.

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Multiple Choice

Q 31Q 31

Mr. Inflexible's utility function is U(x

_{1},x_{2})= min(x_{1},x_{2}). The price of x_{1}_{ }is $1, the price of x_{2}_{ }is $2, and Mr. Inflexible's budget is $120. If an excise tax of $1 per unit is placed on x_{1}, the utility maximizing bundle is: A)(40, 20). B)(50, 25). C)(30, 30). D)(20, 40).Free

Multiple Choice

Q 32Q 32

A price consumption path is derived by:
A)connecting all of the tangency points as the price of a good changes.
B)connecting all of the tangency points as the price of both goods change proportionately.
C)connecting all of the tangency points holding real income constant as the price of a good changes.
D)connecting all of the tangency points holding utility constant as the price of a good changes.

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Multiple Choice

Q 33Q 33

Which of the following is true?
A)Individuals prefer excise taxes.
B)Individuals prefer lump- sum taxes.
C)Lump- sum taxes give individuals fewer choices than excise taxes.
D)Excise taxes impose smaller individual costs than lump- sum taxes.

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Multiple Choice

Q 34Q 34

If some constraint is relaxed or alleviated:
A)preferences likewise will be relaxed or alleviated.
B)a consumer will be worse off.
C)a consumer's behaviour will not change.
D)a consumer will have more options available.

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Multiple Choice

Q 35Q 35

When the price elasticity of demand for x is greater than one:
A)total revenue is negative.
B)the slope of the total revenue function is positive.
C)the slope of the total revenue function is negative.
D)the slope of the total revenue function is zero.

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Multiple Choice

Q 36Q 36

Marc consumes apples (x)and oranges (y). If Marc's demand function for apples is given by: x =
Mp

_{y}/2p_{x}_{ }and Marc's demand for oranges is given by: x = Mp_{x}/2p_{y,}_{ }then apples and oranges are: A)inferior goods. B)inessential goods. C)complements. D)substitutes.Free

Multiple Choice

Q 37Q 37

A negative sloped income consumption line indicates that:
A)both goods are normal.
B)both goods are inferior.
C)one of the goods is normal and the other is inferior.
D)the goods may be normal or inferior.

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Multiple Choice

Q 38Q 38

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of X_{2 }is $5. The opportunity cost of x_{2 }is: A)0.25 units of x_{1}. B)2 units of x_{1}. C)1 unit of x_{1}. D)0.5 units of x_{1}.Free

Multiple Choice

Q 39Q 39

A temporal choice problem involves:
A)two goods.
B)given income and prices.
C)imperfect information.
D)intertemporal choices.

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Multiple Choice

Q 40Q 40

If good x

_{1}_{ }is a substitute for good x_{2}, then an increase in the price of x_{2}_{ }causes the demand of x_{1}_{ }to: A)be indeterminate. B)increase. C)decrease. D)remain unchanged.Free

Multiple Choice

Q 41Q 41

Which of the following assumptions about consumer behaviour implies that the utility maximizing choice will be on the budget constraint.
A)non- satiation
B)transitivity
C)continuity
D)completeness

Free

Multiple Choice

Q 42Q 42

Given the choice between a lump- sum tax and an excise tax that raises the same revenue, a consumer:
A)will be hard- pressed to choose one option over the other.
B)will choose the the excise tax.
C)will choose the lump- sum tax.
D)is indifferent between the two.

Free

Multiple Choice

Q 43Q 43

As the consumer's income changes (while prices remain constant), the consumer would be most likely to choose which points in Figure 3A?
A)A, B, and C
B)B, D, and E
C)A, D, and E
D)E, D, and F

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Multiple Choice

Q 44Q 44

Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 burgers. Spaghetti costs $8 per plate and she had $82 in her purse. If s denotes the number of plates of spaghetti and b denotes the number of burgers purchased, which equation describes the budget line of Tammy?
A)5s+6b = 164
B)5s+6b = 82
C)6s+8b = 82
D)16s +14b = 164

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Multiple Choice

Q 45Q 45

Percy currently buys soup at $4 per bowl, and tea at $2 per cup. His marginal utility from soup is 12 and his marginal utility from tea is 8. The opportunity cost of purchasing one more cup of tea is:
A)1.5
B)2
C)0.66
D)0.5

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Multiple Choice

Q 46Q 46

If the price of the house you just bought went up:
A)you are worse off because you pay higher taxes for the same house.
B)you are better off because you can substitute among a wide variety of items in your consumption bundle.
C)you are better off because you made a quick capital gain.
D)you are worse off because you face higher prices in the economy.

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Multiple Choice

Q 47Q 47

Fred's demand for beer is given by x = M/2p

_{x}. For Fred, beer is a(n): A)inessential good. B)normal good. C)inferior good. D)Giffen good.Free

Multiple Choice

Q 48Q 48

Joseph's utility function is given by x

_{A}_{ }+ 2x_{B}, where x_{A}_{ }denotes his consumption of apples and x_{B}his consumption of bananas. Suppose apples and bananas have the same price, 50 cents. If his income is $10, then Joseph will consume: A)no apples. B)twice as many bananas than apples. C)twice as many apples than bananas. D)same quantity of apples and bananas.Free

Multiple Choice

Q 49Q 49

Own price elasticity of demand is defined as:
A)the change in quantity demanded divided by the change in price.
B)the percentage change in quantity demanded divided by the percentage change in price.
C)the change in price divided by the change in quantity demanded.
D)the percentage change in price divided by the percentage change in quantity demanded.

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Multiple Choice

Q 50Q 50

Which of the following is not a constraint on choice?
A)self- interest
B)time
C)income
D)endowed resources

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Multiple Choice

Q 51Q 51

The Engel curves associated with the indifference map in Figure 3A are:
A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.

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Multiple Choice

Q 52Q 52

By "real" price, an economist means:
A)what an individual seriously pays for a good.
B)not the artificial price.
C)the dollar amount of money required to buy the good.
D)the price in terms of other goods.

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Multiple Choice

Q 53Q 53

Imagine an excise tax and a lump- sum tax which would raise the same revenue from an individual Ms. Arbitrary who has convex preferences. If she was given a choice between the two taxes, then:
A)she would prefer the excise tax.
B)she would be indifferent between the two taxes.
C)we cannot know Ms. Arbitrary's preferences regarding the taxes.
D)she would prefer the lump- sum tax.

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Multiple Choice

Q 54Q 54

Carol experiences a 4% increase in income this year. She is:
A)perhaps better or worse off.
B)unambiguously no better or worse off.
C)unambiguously worse off.
D)unambiguously better off.

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Multiple Choice

Q 55Q 55

If an excise tax on good x and a lump- sum tax put Ms. Arbitrary on the same indifference curve, she would:
A)have identical budget lines under the two taxes.
B)consume more of x given the excise tax than given the lump- sum tax.
C)prefer the lump- sum tax.
D)consume no more of x given the excise tax than given the lump- sum tax.

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Multiple Choice

Q 56Q 56

Mr. Inflexible's utility function is U(x

_{1},x_{2})= min(x_{1},x_{2}). The price of x_{1}_{ }is $2 including a $1 excise tax, the price of x_{2}_{ }is $2, and Mr. Inflexible's budget is $120. Imagine substituting a lump- sum tax for the excise tax. If both taxes leave Mr. Inflexible on the same indifference curve, then the Lump- sum tax is: A)$30. B)$10. C)$20. D)$50.Free

Multiple Choice

Q 57Q 57

In order for a maker of cellophane not to be charged with monopolizing the market, the cross- price elasticity of cellophane and other packaging products has to be:
A)high.
B)low.
C)not defined.
D)zero.

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Multiple Choice

Q 58Q 58

If goods A and B are complements
A)the price- consumption path is downward sloping
B)the price- consumption path is upward sloping
C)the income- consumption line is downward sloping
D)the income- consumption line is upward sloping

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Multiple Choice

Q 59Q 59

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of X_{2 }is $5. If her utility function is U(x_{1},x_{2})= x_{1 }+ x_{2}, her utility maximizing bundle is: A)(12, 0). B)(7, 10). C)(0, 24). D)(8, 8).Free

Multiple Choice

Q 60Q 60

If an individual's Engel curve for a good is negatively sloped, then the good is:
A)a normal good.
B)an Engel good.
C)a Giffen good.
D)an inferior good.

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Multiple Choice

Q 61Q 61

Ron's utility function is given by U(x,y)= min[x,y]. If the price of x is 2 and the price of y is 1, Ron spends his $12 income on:
A)4 units of x and 2 units of y.
B)4 units of x and 4 units of y.
C)2 units of x and 4 units of y.
D)2 units of x and 2 units of y.

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Multiple Choice

Q 62Q 62

Elasticity is an attractive measure of comparative static responses for all of the following reasons except, elasticities:
A)relate changes in price to changes in total revenue.
B)are directly observable.
C)are units- free.
D)relate %- changes in one variable to %- changes in other variables.

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Multiple Choice

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Multiple Choice

Q 64Q 64

Ron's utility function is given by U(x,y)= min[2x,y]. If the price of x is 1 and the price of y is 1, Ron spends his $12 income on:
A)4 units of x and 4 units of y.
B)8 units of x and 8 units of y.
C)4 units of x and 8 units of y.
D)8 units of x and 4 units of y.

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Multiple Choice

Q 65Q 65

Income elasticity of demand for an inferior good is:
A)not properly defined.
B)negative.
C)positive.
D)zero.

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Multiple Choice

Q 66Q 66

If the market demand for oranges is relatively inelastic with respect to price, orange consumers:
A)will buy fewer oranges at any higher price but will spend more money on oranges.
B)will buy fewer oranges at any higher price and will spend less money on oranges.
C)will buy more oranges at any higher price.
D)pay no attention to price in their purchasing decisions.

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Multiple Choice

Q 67Q 67

Suppose that p

_{x }= 2 and p_{y }= 5. Jane spends her $100 income on 25 units of x and 10 units of y. When the price of x doubled to $10 per unit, Jane's father gave her an extra $50 so that she could buy the same bundle that she did before the price change. Assuming convex indifference curves, which of the following statements is true? A)No conclusions can be drawn regarding Jill's welfare unless we know her utility function B)Jill is just as well off as before the price change C)Jill is actually better off now than she was before D)Jill is worse off now than she was beforeFree

Multiple Choice

Q 68Q 68

Which of the following will not cause a change in the demand for butter?
A)a new disease strikes milk cows
B)the price of butter falls
C)a frost hits Florida
D)dairy workers get a wage increase

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Multiple Choice

Q 69Q 69

When Netscape took Microsoft to court for using anti- competitive practices, the contention was that the Internet Explorer, a browser, and Windows, the operating system, were:
A)not working properly.
B)incompatible.
C)substitutes.
D)complements.

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Multiple Choice

Q 70Q 70

Mr. Inflexible's utility function is U(x

_{1},x_{2})= min(x_{1},x_{2}). The price of x_{1}_{ }is $2 including a $1 excise tax, the price of x_{2}_{ }is $2, and Mr. Inflexible's budget is $120. Imagine substituting a lump- sum tax for the excise tax. If both taxes raise the same amount of tax revenue, the lump- sum tax is: A)$20. B)$30. C)$10. D)$50.Free

Multiple Choice

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Multiple Choice

Q 72Q 72

Beth consumes two goods, x

_{1}_{ }and x_{2}, and her income is $120. The price of x_{1}_{ }is $10, and the price of X_{2 }is $5. If her utility function is U(x_{1},x_{2})= min(x_{1},x_{2}), her utility maximizing bundle is: A)(7, 10). B)(12, 0). C)(8, 8). D)(0, 24).Free

Multiple Choice

Q 73Q 73

The fact that most bundles of goods purchased at a given store are more expensive if bought elsewhere:
A)is a sign of deeply discounted prices.
B)can be interpreted in a wide variety of ways.
C)is a clear proof that this store is cheaper on average than other stores.
D)is an illustration of the maximization process.

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Multiple Choice

Q 74Q 74

If Mary always spends 10% of her income on records, regardless of the prices of records or other goods, then:
A)Mary could not be a utility maximizer.
B)records are inferior goods.
C)Mary's income elasticity of demand for records is one.
D)records are abnormal goods.

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Multiple Choice

Q 75Q 75

Joseph's utility function is given by x

_{A}_{ }+2x_{B}, where x_{A}_{ }denotes his consumption of apples and x_{B}his consumption of bananas. If a banana cost 50 cents and an apple costs also 50 cents, how many bananas will he buy if his income is $10? A)0 B)10 C)20 D)5Free

Multiple Choice

Q 76Q 76

Which of the following statements is false on theoretical grounds?
A)It is possible that all goods are normal.
B)It is possible that all goods are inferior.
C)It is possible that all goods are essential.
D)It is possible that all goods are inessential.

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Multiple Choice

Q 77Q 77

A consumer's demand functions depend on:
A)her income and the prices of goods and services.
B)the supply of goods and services.
C)weakly convex indifference curves.
D)careful mathematical analysis.

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Multiple Choice

Q 78Q 78

Quantity demanded of good x does not increase as the price of x increases if x is:
A)a Giffen good.
B)an inferior good whose income effect dominates its substitution effect.
C)a normal good.
D)an Engel good.

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Multiple Choice

Q 79Q 79

Which of the following statements accurately reflects the money illusion?
A)Consumers care only about relative prices, not money prices.
B)Pure inflation does not change the budget constraint.
C)A change in money prices changes the indifference curves.
D)Money has no intrinsic value and therefore is essentially worthless.

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Multiple Choice

Q 80Q 80

A utility maximizing bundle is:
A)the bundle which satiates the consumer's desires.
B)inside the budget line and on an indifference curve.
C)on a budget line tangent to an indifference curve.
D)at the origin of the indifference map.

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Multiple Choice

Q 81Q 81

If the cross- price elasticity of Nicorette, a nicotine replacement therapy, and cigarettes is 0.7, then:
A)tobacco companies cans till make money.
B)cigarettes and Nicorette are not compatible.
C)cigarettes and Nicorette are substitutes.
D)cigarettes and Nicorette are complements.

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Multiple Choice

Q 82Q 82

Suppose that an individual consumes only two goods, good 1 and good 2. If the price of good 1 rises, with all else constant, and the price elasticity of demand for good 1 is - 0.7, will the quantity of good 2 increase?

Free

Essay

Q 83Q 83

Suppose an individual's income is the same before and after an excise tax is imposed on good 1 and the demand for good 1 is elastic. Will the excise tax lead to an increase in spending on other consumer goods?

Free

Essay

Q 84Q 84

What is the topic of the quote from Mark Twain's classical story "A Connecticut Yankee in King Arthur's Court" reproduced in chapter 3?

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Essay

Q 85Q 85

Susan Ng's preferences over bowls of french fries (x)and pints of ice cream (y)are given by: U = x

^{2 }+y^{2}The price of french fries is $2 a bowl while the price of ice cream is $3 a pint. Her income is $8. At her optimal choice, how many bowls of fries will she buy? How many pints of ice cream?Free

Essay

Q 86Q 86

Stephen's demand for x1 can be expressed by the equation x1=0.4m/P

_{1}P_{2}. What is the own price elasticity of demand when income, m, is $20,000, the price of good 1 is $5, and the price of good 2 is $7.50?Free

Essay

Q 87Q 87

The price of x is $1 and the price of y is $2. An individual with a fixed money income consumes 10 units of each in equilibrium. Suppose the price of x increases to $2 and the price of y increases to $3 while her money income increases to $50. Will her consumption of y fall?

Free

Essay

Q 88Q 88

According to the text, the income elasticity for cigarettes has been estimated at between
- 0.23 and - 0.55. What happens to total consumer spending on cigarettes as the tax on tobacco products increases?

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Essay

Q 89Q 89

Ann's well- being depends upon her consumption of milk (in pints, x1)and video games (x2). Her utility function is given by: U = 3lnx

_{1}_{ }+ x_{2}. Calculate her demand for milk, her demand for video games, and her optimal choice when p_{1}_{ }= $3/pint, p_{2}_{ }= $2/game and her income is M = $14. Now suppose the government subsidized Geoff's milk by $2 per pint, so the price of milk fell from $3 to $1. a)Calculate: i)How much milk Geoff would demand at the subsidized price ii)How many video games he would demand and iii)His level of utility iv)The cost of the subsidy to the government. b)If the government gave Geoff the amount calculated in part (a - iv)in cash (leaving the price of milk at its original level of $3), how much milk would he demand, how many video games, and what would his utility be?Free

Essay

Q 90Q 90

Brad lives in a two good world consisting of x and y. Brad has a budget of B = 120 and an endowment of good x
equal to 90 units. Brad can either buy or sell good x in a common market for the price p

_{x}. The price of y is 1. Brad's utility function is of the form U(x,y)= xy a)Write down Brad's budget constraint. b)Find expressions for Brad's demand functions for x and y. c)At what values of p_{x}_{ }is Brad a net buyer of good x , at what values is he a net seller, and at what price does Brad's demand for x just equal his endowment?Free

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Q 91Q 91

Sally consumes two goods, X and Y. Her utility function is given by the expression
U(X,Y)= X

^{0.4}Y^{0.6}^{ }. The current market price of X is $20 per unit, while the market price of Y is $100 per unit. Sally's current income is $10,000. a)Calculate Sally's demand for X as a function of prices and incomes. Is good X normal? b)How much X and Y will Sally demand at current market prices? What will Sally's utility be with that consumption? c)Find the income elasticity and the price elasticity of demand for X.Free

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Q 92Q 92

If Amy spent her entire allowance, she could afford 8 candy bars and 8 comic books a week. She could also just afford 10 candy bars and 4 comic books a week. The price of a candy bar is 50 cents.
a)Draw Amy's budget line.
b)What is the price of a comic book?
c)What is Amy's weekly allowance?

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Q 93Q 93

Explain how consideration of moral constraints, as opposed to budget constraints, can complement the usefulness of an economic model.

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