Chapter 14 T or F Flashcards
Consumer’s surplus is another name for excess demand.
F
There is a positive consumer surplus when the total amount one pays for something is less than the amount one would be willing to pay rather than do without it altogether.
T
The equivalent variation in income from a tax is the amount of extra income that a consumer would need in order to be as well off after the tax is imposed as he was originally.
F
With quasilinear preferences, the equivalent variation and the compensating variation in income due to a tax are the same.
T
Producer’s surplus at price p is the vertical distance between the supply curve and the demand curve at price p.
F
If somebody is buying 15 units of x and the price of x falls by $2, then that person’s net consumer surplus must increase by at least $30.
T
If somebody is buying 15 units of x and the price of x falls by $4, then that person’s net consumer surplus must increase by at least $60.
T
If there is Cobb-Douglas utility, compensating and equivalent variation are the same.
F
Bernice has the utility function U(x, y) = min{x, y}. The price of x used to be 3, but rose to 4. The price of y remained at 1. Her income is 12. The price increase was as bad for her as a loss of $3 in income.
F
If there is a price increase for a good that Josephine consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices.
F
If there is a price increase for a good that Elsie consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices.
F
Bernice’s utility function is U(x, y) = min{x, y}. The price of x used to be 3, but rose to 4. The price of y remained at 1. Her income is 12. She would need an income of $15 to be able to afford a bundle as good as her old one at the new prices.
T
