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1 | |
Questions 4-1 to 4-3 relate to the graph below.
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The arrows shown on the graph above depict: |
| | A) | changes in the price level of X. |
| | B) | the amount of resources given up in order to acquire good X at different levels of the price of X. |
| | C) | the amount of income spent on good X as nominal income rises. |
| | D) | the drop in the price of good Y. |
| | E) | the amount of the composite good purchased at different levels of the price of X. |
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2 | |
With price in $/unit and quantity in units, which price and quantity coordinate is not on the demand curve derived from the graph above? |
| | A) | price = 1, quantity = 50 |
| | B) | price = 1.67, quantity = 45 |
| | C) | price = 2, quantity = 50 |
| | D) | price = 2.5, quantity = 32 |
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3 | |
Which is true of a demand curve constructed from the graph above? |
| | A) | Nominal income is held constant over the range of the demand curve. |
| | B) | Real income is held constant over the range of the demand curve. |
| | C) | The price of good Y is held constant as the price of X is varied. |
| | D) | Both a and c are true. |
| | E) | Both b and c are true. |
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4 | |
An income consumption curve shows what happens to the consumer''s consumption of good X as nominal income increases and |
| | A) | the price of X falls. |
| | B) | the prices of X and Y stay constant. |
| | C) | the price of Y falls. |
| | D) | real income stays constant. |
| | E) | The prices of both X and Y increase by the same proportion. |
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5 | |
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? |
| | A) | The answer is -2. |
| | B) | The answer is -10. |
| | C) | The answer is +2. |
| | D) | The answer is +10. |
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6 | |
The graph below relates to questions 4-6 and 4-7. From the graph below we know that good X is a normal good, because as the price of X falls and real income increases, the income effect on the demand for X is measured by observing the quantity change from
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| | A) | B to D. |
| | B) | B to C. |
| | C) | C to D. |
| | D) | C to E. |
| | E) | B to E. |
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7 | |
The substitution effect |
| | A) | is measured by observing movement around the original indifference curve labeled 1. |
| | B) | is measured on the graph above by the distance BC. |
| | C) | is always inversely related to the price change of the good. |
| | D) | conceptually holds real income constant so that the price effect alone is measured. |
| | E) | is described, in part, by all of the above. |
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8 | |
Changes in the price of X have less effect on the consumption of X: |
| | A) | the larger the budget share involved. |
| | B) | the further from the Y intercept the consumer''s optimal market basket lies. |
| | C) | the easier it is to substitute toward an alternate product. |
| | D) | the more gradual the change in curvature of the indifference curve. |
| | E) | when the opposite of all the above is true. |
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9 | |
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. |
| | A) | P = 60 - 3.2Q |
| | B) | P = 120 - 3.2Q |
| | C) | P = 60 - 0.75Q |
| | D) | P = 60 - 0.8Q |
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10 | |
If the slope of the demand curve for X is constant, then as the price of X moves upward from zero, the absolute value of the price elasticity of X |
| | A) | increases. |
| | B) | decreases. |
| | C) | doesn''t change, since the slope is constant. |
| | D) | increases up to the midpoint of demand and then decreases. |
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11 | |
What is the point elasticity for the demand curve P = 100 - 4Q at the price of $20/unit? |
| | A) | The answer is -0.2. |
| | B) | The answer is -0.25. |
| | C) | The answer is -1. |
| | D) | The answer is -1.2. |
| | E) | None of the above is correct. |
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12 | |
If you were in business and faced the demand curve P = 100 - 4Q, and your price was currently $30/unit, which of the following would definitely be a good strategy? |
| | A) | You should raise your price, because your revenues would increase and you would be producing less. |
| | B) | You should lower your price, to gain more revenue. |
| | C) | You should hold price where it is, because you are profit maximizing now. |
| | D) | You do not have enough information to make any of the statements listed above. |
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2002 McGraw-Hill Higher Education