CHAPTER 6 T OR F Flashcards
If preferences are quasilinear, then for very high incomes the income offer curve is a straight line parallel to one of the axes.
T
In economic theory, the demand for a good must depend only on income and its own price and not on the prices of other goods.
F
If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.
T
If consumers spend all of their income, it is impossible for all goods to be inferior goods.
T
An Engel curve is a demand curve with the vertical and horizontal axes reversed.
F
If the demand curve is a downward-sloping straight line, then the price elasticity of demand is constant all along the demand curve.
F
. If the price elasticity of demand for a good is -1, then doubling the price of that good will leave total expenditures on that good unchanged.
T
If preferences are homothetic, then the slope of the Engel curve for any good will decrease as income increases.
F
A good is a luxury good if the income elasticity of demand for it is greater than 1.
T
Prudence was maximizing her utility subject to her budget constraint. Then prices changed. After the price change she is better off. Therefore, the new bundle costs more at the old prices than the old bundle did.
T
If income is doubled and all prices are doubled, then the demand for luxury goods will more than double.
F
If preferences are homothetic and all prices double while income remains constant, then demand for all goods is halved.
T
An inferior good is less durable than a normal good.
F
It is impossible for a person to have a demand curve that slopes upward at all prices.
T
Donald’s utility function is ( U (x, y) = x + y^{1/2} ). Currently, he is buying some of both goods. If his income rises and prices don’t change, he will buy more of both goods.
F
Angela’s utility function is ( x + y^{1/2} ). It is possible that if her income is very high, an increase in income will not make her spend more on ( y ).
T
. When other variables are held fixed, the demand for a Giffen good rises when income is increased.
F
A rational consumer spends her entire income. If her income doubles and prices do not change, then she will necessarily choose to consume twice as much of every good as she did before.
F
A consumer has a utility function given by ( U = \min{x_1, 2x_2} ). If Good 2 has a price of zero, the consumer will always prefer more of Good 2 to less.
F
A consumer has the utility function ( U (x, y) = \min{x, 2y} ). If the price of good ( x ) is zero and the price of good ( y ) is ( p ), then the consumer’s demand function for good ( y ) is ( m/2p ).
F
Fred has a Cobb-Douglas utility function with exponents that sum to 1. Sally consumes the same two goods, but the two goods are perfect substitutes for her. Despite these differences, Fred and Sally have the same price offer curves.
F
. Darlene’s utility function is ( U (x, y, z) = x^3y^3z ). If her income doubles and prices remain unchanged, her demand for good ( Y ) will more than double.
F
Darlene’s utility function is ( U (x, y, z) = x^4y^7z ). If her income doubles and prices remain unchanged, her demand for good ( Y ) will more than double.
F
Quasilinear preferences are homothetic when the optimal amount of one of the goods is not affordable.
F
