Chapter 8 T or F Flashcards
A Giffen good must be an inferior good.
T
If a good is an inferior good, then an increase in its price will increase the demand for it.
F
The compensated demand function refers to the demand function of someone who is adequately paid for what he or she sells.
F
The Slutsky substitution effect measures the movement between two points on the same indifference curve.
F
In the case of homothetic preferences the entire change in demand from a price change is due to the substitution effect
F
If two goods x and y are perfect complements, then if the price of x falls, the entire change in the demand for x is due to the income effect.
T
If the Engel curve slopes up, then the demand curve slopes down.
T
A rational consumer prefers more of good x to less. If the price of good x rises and the prices of all other goods remain constant, then the consumer must necessarily demand less of x.
T
A rational consumer prefers more of good x to less. If the price of good x rises and the prices of all other goods remain constant, then the consumer must necessarily demand less of x.
F
Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises, demand for the other good must fall.
T
An increase in the price of a Giffen good makes the people who consume that good better off.
F
A rational consumer prefers more of good x to less. If the price of good x rises and the prices of all other goods remain constant, then the consumer must necessarily demand less of x.
T
Suppose a consumer has strictly convex preferences and her Engel curve for a good is a vertical line for some range of income. In that same income range, her demand curve for the good slopes down.
T
3 Jimmy’s utility function is (U(a,b)=ab) where (a) is his consumption of apples and (b) is his consumption of bananas. If prices and income change in such a way that Jimmy’s old consumption lies on his new budget line, then Jimmy will not change his consumption bundle.
F
John purchases two goods, x and y. Good x is an inferior good for some range of income. There must be another range of income for which good x is a normal good.
T
8.16 A consumer has the utility function (U(x,y)=x+2y^{1/2}). The price of good x is 2 and the price of good y is 1. The consumer’s income is 20. If the price of good y rises to 2, then the entire change in demand for y is due to the substitution effect.
T
The Hicks version of the substitution effect of a price change measures the change in a consumer’s demand if the consumer’s income were changed just enough so the consumer would remain on the same indifference curve as before the price change.
T
