Q&A Hero

Q: The price of video cassette recorders (VCRs) remains constant, but the market demand curve for VCRs shifts leftward as consumers shift to DVDs and other video technologies. What happens to the consumer surplus in this market as the demand curve shifts? A) Increases B) Decreases C) Remains the same D) We do not have enough information to answer this question.

Q: In closing down a military base, environmental inspectors found 100 tons of toxic waste. Which of the following is NOT a determinant of the consumer surplus generated by cleaning up 40 tons of waste? A) The price of removing a ton of toxic waste B) The original quantity of toxic waste found by the inspectors C) The quantity of toxic waste removed by cleanup D) The effect of each ton reduction of toxic waste on the profitability of the alternative uses for this land E) The effect of each ton reduction of toxic waste on the health of citizens living near the base

Q: A consumer's demand for CDs can be represented by a line with slope -b and intercept a. If the current price of CDs is $P, then the ratio of consumer surplus to total expenditures on CDs equals A) (a - P)(a - bP). B) 1/2(a - P)(a - bP). C) D(a - bP). D) (a - P)/P. E) (a/b - P)/(2P).

Q: The demand curve for tickets to the George Winston concert (with special guest star, Kenny G) is given as follows: Q = 200 - 0.1P At a price of $30, what is the consumer surplus from concert tickets? A) $0 B) $20 C) $2,000 D) $1,970 E) $194,045

Q: When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture A) increases. B) decreases. C) does not change. D) could be any of the above.

Q: The price of beef and quantity of beef traded are P and Q, respectively. Given this information, consumer surplus is the area: A) 0BCQ B) ABC C) ACP D) CBP E) 0ACQ

Q: 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.

Q: 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.

Q: 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?Family MemberDemandElasticityJosephB = 100 - 2PMaryB = 50 - 5PJoe, Jr.B = 300PaulB = 150 - DavidB = 0FAMILY

Q: There are two types of people that live on planet Economus. The Utility function of each type is given in the table.TypeUtilityMU1MU2I2x16II62x2Derive the demand curves for each type. Everyone on the planet has $1,000 of income per period and there are 100 individuals of type I and 100 individuals that are type II. Derive the market demand curve for each good.

Q: Suppose that the demand for artichokes (Qa) is given as:Qa = 120 - 4Pa. 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?

Q: 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: Pd = 5 - 0.005Qd Foreign demand: Pf = 3 - 0.00075Qf, where Pd and Pf are in dollars per pound, and Qd and Qf 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 P = $2.50 per pound. Check to see if the sum of Qd and Qf equals Q. d. Determine total rate of purchases at P = $4.00 per pound.

Q: 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?

Q: 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 P = $2.00 per pound.

Q: 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.

Q: 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?

Q: 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?

Q: 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 govenment 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

Q: Suppose the aggregate demand for housing in the U.S. includes a substantial speculative component. What happens of the expectations of speculators change, and they believe housing prices will not increase in the future? A) The aggregate demand curve shifts leftward, and the equilibrium market price declines. B) The aggregate demand curve shifts leftward, and the equilibrium market price increases. C) The speculative demand curve shifts leftward, but the aggregate demand curve is unchanged. D) There is no change in the current demand for housing because speculators' expectations are based on future events.

Q: Many governments around the world attempt to improve the incomes of commodity producers by taking steps to increase the commodity price in the domestic market. Although this may reduce quantity demanded for the product, the action may be effective because: A) commodity supply tends to be inelastic, so quantity does not decline by much. B) commodity supply tends to be elastic, so producer income increases as a result of the higher prices and quantities. C) commodity demand tends to be inelastic, so higher prices generate higher sales revenue. D) commodity supply tends to be elastic, so producer income increases as a result of the higher prices and quantities.

Q: Suppose your manufacturing firm is not a price-taking seller (i.e., has some control over your product price) and sells machinery to U.S. (domestic) buyers as well as foreign buyers. The domestic demand for your product is inelastic but the foreign demand is elastic, and the machinery is bulky so that the high transport costs prevent resale among the buyers. You could charge both groups of buyers the same price for the machinery, but you know that you could increase total sales revenue by charging the domestic buyers a ________ price and charging the foreign customers a ________ price. A) higher, higher B) higher, lower C) lower, higher D) lower, lower

Q: The demand curves for gold in New York and Zurich can both be represented by a line with negative slope, -b. When the price is zero the demand for gold is x ounces higher in New York than in Zurich. At the current price of gold the price elasticity of demand for gold in New York and Zurich is -3 and -4 respectively. The value of x equals A) a quarter of the current demand for gold in New York B) a third of the current demand for gold in New York C) a half of the current demand for gold in New York D) three-quarters of the current demand for gold in New York E) none of the above

Q: Gold buyers are located in New York and Zurich. If the price of gold is $400 an ounce, the worldwide demand for gold is 10,000 ounces. Also, the price elasticity of demand for gold in New York and Zurich are -3 and -2 respectively. If the slope of each demand curve in New York is the same as in Zurich, then the quantity of gold demanded by dealers in Zurich is A) 10,000/3. B) 5,000. C) 6,000. D) 10,000. E) none of the above

Q: Microsoft wants to calculate the effect of a worldwide 5% price cut on its sales of Excel to clients in different countries. Microsoft sells Excel at different prices in U.S., Japan and Europe. Before the price cut U.S. sales were twice sales in Japan and Europe. If the price of elasticity of demand in the U.S., Japan and Europe are -3, -4, and -2 respectively, the worldwide sales rise by A) 10%. B) 15%. C) 20%. D) 25%. E) none of the above

Q: To determine whether an increase in the price of gasoline results in a consumer spending a larger share of their expenditure on gasoline we need to know A) only how much money the consumer spends on gasoline before the price change B) only the change in the price of gasoline C) only the change in the price of gasoline as a percentage of the original price D) only the own price elasticity of demand for gasoline E) none of the above

Q: Consider the following statements when answering this question. I. If no consumer has a kinked demand curve for CDs, then the market demand curve for CDs cannot be kinked either. II. If at a price of $10, every consumer has inelastic demand, then at that price the market demand for CDs will be inelastic too. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: The point price elasticity of demand for red herring is -4. The demand curve for red herring is: Q = 120 - P. What is the price of red herring? A) $96 B) $80 C) $100 D) $120 E) none of the above

Q: General Motors estimates that U.S. demand for its newest product will be: Qus = 30,000 - 0.5P. Export demand will be Qex = 25,000 - 0.5P. 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

Q: 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

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the cross-price elasticity of Rock and Roll Trivia programs and diskettes?A) -1/90B) 0C) 1/90D) 1E) none of the above

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the income elasticity of demand?A) 0B) 5/9C) 1D) 9/5E) none of the above

Q: See the information in Scenario 4.4. Suppose that the price should increase slightly from $10, how will this affect the total expenditure of consumers on the game? A) Total expenditures will increase. B) Total expenditures will not change. C) Total expenditures will decrease by a larger percentage than the price increase. D) Total expenditures will decrease by a smaller percentage than the price increase. E) either C or D could be true.

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the price elasticity of demand?A) 0B) -5/9C) -1D) -9/5E) none of the above

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. How many games will be sold?A) -100B) 0C) 50D) 90E) none of the above

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. From this demand curve, one can infer that:A) an increase in advertising will cause an increase in the demand for Rock and Roll Trivia.B) Rock and Roll Trivia and computers are substitutes.C) Rock and Roll Trivia and diskettes are substitutes.D) all of the aboveE) none of the above

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. From this demand curve, one can infer that:A) Rock and Roll Trivia is an inferior good.B) computers and diskettes are substitutes.C) computers and diskettes are complements.D) computers are a normal good.E) A, B and D are true.

Q: Scenario 4.4:The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:Q = 200 - 5P - .1Pc - .5Pd + .2A - Iwhere P is the price of the gamePc is the price of a computerPd is the price of a disketteA is the level of advertisingQ is the level of incomeSee the information in Scenario 4.4. Does the demand curve for Rock and Roll Trivia slope downward?A) Yes it does.B) No it does not.C) More information is needed to answer this question.

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingThe point price elasticity of demand is -1/2. The price of the product increases from $1.00 to $1.10. Given the information in Scenario 4.3, the quantity demanded will decrease by approximately:A) 5 units.B) 5 percent.C) 10 units.D) 10 percent.E) none of the above

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, erasers and good b, are:A) substitutes.B) complements.C) completely unrelated.D) normal.E) inferior.

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, erasers are:A) a normal good.B) an inferior good.C) neither normal nor inferior.D) complements.E) necessities.

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, suppose that the price of erasers increases slightly from $10. How will this affect the total revenue collected by the firm?A) Total revenue will increase.B) Total revenue will not change.C) Total revenue will decrease.D) There will be an indeterminate change in total revenue.

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, it would be correct to say that demand is:A) infinitely elastic.B) elastic, but not infinitely elastic.C) unit elastic (Ep = -1).D) inelastic, but not completely inelastic.E) completely inelastic.

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, what is the point price elasticity of demand?A) -1/3B) -1/6C) -1/10D) -1/24E) -5/24

Q: Scenario 4.3:The demand for erasers (Q) is given as follows:Q = 240 - 4Pe + 2I + Pb + Awhere Pe is the price of erasersI is the level of incomePb is the price of another goodA is the level of advertisingSuppose that Q = 240, Pe = 10, Pb = 10, and A = 2.Given the information in Scenario 4.3, determine I.A) 0B) 14C) 24D) 36E) 48

Q: Scenario 4.2:Suppose that the demand for artichokes (Qa) is given as:Qa = 200 - 4PUse the information in Scenario 4.2. At what price, if any, is the demand for artichokes completely elastic?A) 50B) 30C) 10D) 0E) none of the above

Q: Scenario 4.2:Suppose that the demand for artichokes (Qa) is given as:Qa = 200 - 4PUse 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, riseB) rise, fallC) fall, riseD) fall, fall

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

Q: Which of the following functions is least likely to represent a real demand curve?A) Q = 120 - 2PB) Q = 120 - 3P + 2IC) Q = 120/PD) Q = 120 + 3P - 2IE) Q = 120/(Pa + Pb)

Q: What is the shape of the marginal revenue curve derived from a linear downward sloping demand curve? A) Horizontal B) Vertical C) U-shaped D) Downward sloping, with a constant slope

Q: What is the shape of the total revenue curve derived from a horizontal demand curve? A) Horizontal B) Vertical C) U-shaped D) Upward sloping, with a positive slope

Q: What is the shape of the total revenue curve derived from a linear downward sloping demand curve? A) Horizontal B) Vertical C) U-shaped D) Inverted u-shaped

Q: Use the following two statements to answer this question: I. The price elasticity of demand is constant along the entire length of a linear demand curve. II. The price elasticity of demand is the special name that economists give to the slope of a demand curve. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: As the price of good X increases from $5 to $8, quantity demanded falls from 100 to 80. Based upon this information we can conclude that the demand for X is A) elastic. B) inelastic. C) unit inelastic. D) insufficient information for judgment.

Q: In a recent article, two economists estimated that the 37.5% increase in price that would result from a 75 cent tax increase on cigarettes would lead to a decrease in smoking among college students of 30%. What can you conclude about the demand for cigarettes among college students? A) It is price elastic. B) It is price inelastic. C) It is unit elastic. D) It is perfectly inelastic.

Q: Which of the following is true about the demand for gasoline? A) It is probably more price elastic in the long run because price will increase by a higher percentage. B) It is probably more price elastic in the long run because it is easier to find substitutes for gasoline in the long run. C) It is probably more price elastic in the short run because price will increase by a higher percentage. D) It is probably more price elastic in the short run because it is easier to find substitutes for gasoline in the short run.

Q: The demand for sirloin steak is probably more elastic than the demand for all meat because A) steak is very expensive. B) people are worried about cholesterol. C) cattle raising is not very profitable. D) there are more substitutes for sirloin steak than for all meats.

Q: Recently, Skooterville has experienced a large growth in population. As a result, the demand curve for telephone service in Skooterville: A) has shifted to the right. B) has shifted to the left. C) has shifted down. D) Both B and C are correct. E) none of the above

Q: 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. D) change in the opposite direction and by the same percentage as any price change.

Q: 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.

Q: 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.

Q: A consumer spends his income on food and rent. The government places a $1 tax on food. To restore the pre-tax consumption level of food the rebate paid to consumers will be smallest whenA) the own price elasticity of demand for food is 2, and the income elasticity of demand for food is 5.B) the own price elasticity of demand for food is 5, and the income elasticity of demand for food is 5.C) the own price elasticity of demand for food is 2, and the income elasticity of demand for food is 10.D) the own price elasticity of demand for food is 5, and the income elasticity of demand for food is 10.

Q: The demand curves for steak, eggs, and hot dogs are given in the table below. The current price of steak is $5. The price of eggs is $2.50, and the price of hot dogs is $0.75. Fill in the remaining columns of the table using this information. Indicate which goods are substitutes and which goods are complements.GoodDemand EquationSteak Price Elasticity of DemandEgg Price Elasticity of DemandHotdog Price Elasticity of DemandSteakDS = 500 - 2PS - PE + PHEggDE = 75 - 3PE - PS + PHHotdogDH = 300 - PH + PS + PE

Q: Margaret's optimal consumption is shown in the diagram below for two different prices of Hy-Vee Cola. Decompose the change in Hy-Vee Cola consumption into income and substitution effects. Do the effects work in opposite directions?

Q: The diagram below depicts the change in optimal consumption bundles for Marty when the price of shotgun shells fall. Decompose the change into the income and substitution effects.

Q: The following data pertain to products A and B, both of which are purchased by Madame X. Initially, the prices of the products and quantities consumed are: PA = $10, QA = 3, PB = $10, QB = 7. Madame X has $100 to spend per time period. After a reduction in price of B, the prices and quantities consumed are: PA = $10, QA = 2.5, PB = $5, QB = 15. Assume that Madame X maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Madame X to put her back on the original indifference curve, she would consume this combination of A and B: QA = 1.5, QB = 9 a. Determine the change in consumption rate of good B due to (1) the substitution effect and (2) the income effect. b. Determine if product B is a normal, inferior, or Giffen good. Explain.

Q: 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 = QcDonald 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.

Q: Suppose the marginal rate of substitution is constant at 6 for all possible consumption bundles. Next suppose that the price of good 1 decreases, and the ratio P1/P2 is greater than 6. Show that the income and substitution effects from this price change are both zero.

Q: If the marginal rate of substitution is infinite or zero, show that the substitution effect of a price change for a good is zero.

Q: As a group, U.S. consumers have no income response for their consumption of ice cream so that the income elasticity of demand for ice cream equals zero. Does this mean that the change in ice cream consumption that results from a price increase is entirely composed of the substitution effect? A) Yes, the income effect associated with a price change is zero B) No, any price change moves the point of consumption to a new indifference curve, so there must be a non-zero income effect C) No, the income and substitution effects in this case move in opposite directions and completely offset one another, so it only appears that the income effect is zero D) We need more information about the goods to answer this question

Q: Suppose you only consume rice and bananas. Can both of these goods be Giffen goods in your consumption? A) Yes, this is possible B) No, at least one of the goods must be normal C) No, they both can be inferior, but at least one of the goods cannot be a Giffen good D) We need more information about the goods to answer this question

Q: Your indifference curves for good X (horizontal axis) and good Y (vertical axis) are vertical lines because you do not gain any satisfaction from consumption of Y. As the price of X declines, the change in consumption of X is entirely composed of the: A) income effect. B) substitution effect. C) Giffen effect. D) independent good effect.

Q: 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

Q: The Russian government wants to reduce the consumption of vodka. A one hundred rouble tax on each bottle purchased may reduce the consumption of vodka under which circumstance(s)? A) Vodka is an inferior good. B) Vodka is a normal good. C) Vodka is an inferior good and the taxes collected from this tax are rebated to consumers. D) Vodka is a normal good and the taxes collected from this tax are rebated to consumers. E) both B and C

Q: 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.

Q: 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 = QcDaniel 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 - PcB) Qc = 240/PcC) Qc = 120/PcD) Qc = 240/(3 + Pc)E) none of the above

Q: 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 = QcDaniel 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) 0B) 24C) 40D) 60E) none of the above

Q: 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 = QcDaniel 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 = PdB) Pc = QcC) Qd = I - 3QcD) Qc = QdE) all of the above

Q: 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 = QcDaniel 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 + 3PdB) 240 = 3Qc + 3QdC) 240 = (Pc)(Qc)D) 240 = (Qc)(Qd)E) none of the above

Q: Figure 4.2A consumer's original utility maximizing market basket of goods is shown in Figure 4.2 as point A. Following a price change, the consumer's utility maximizing market basket is at point B.Based Figure 4.2, clothing is:A) a normal good.B) an inferior good, but not a Giffen good.C) a Giffen good.D) none of the above

Q: Figure 4.2A consumer's original utility maximizing market basket of goods is shown in Figure 4.2 as point A. Following a price change, the consumer's utility maximizing market basket is at point B.Refer to Figure 4.2. The income effect on the quantity of clothing purchased is:A) the change from C1 to C3.B) the change from C1 to C2.C) the change from C2 to C3.D) the change from C3 to C2.E) none of the above