Content quiz 2

Question 1

If a good is inferior and its price decreases,

Answer 1

The income effect will be negative and the substitution effect will be positive

Question 2

Assume X and Y are the only two goods a person consumes. If after a rise in the price of X the quantity
demanded of Y increases, one could say

Answer 2

The substitution effect dominates the income effect for Y

Question 3

Suppose a person’s utility is only a function of their consumption of diet soda and they do not care
which brand, Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that PDC < PDP. If PDC
rises but remains less than PDP then the consumption of DC

Answer 3

Falls from a positive amount to another positive amount

Question 4

Suppose there are two goods (X and Y). On a traditional graph of a budget line a tripling of all
prices and incomes will

Answer 4

Leave the budget line unaltered.

Question 5

With only two goods, if the income effect is in the same direction as the substitution effect then the
good is

Answer 5

Normal

Question 6

With only two goods, if the income effect is in the opposite direction as the substitution effect but
the substitution effect dominates then the good is

Answer 6

Inferior but not Giffen

Question 7

If good X is a normal good and its price rises, then the quantity demanded

Answer 7

Will always fall

Question 8

If a good is inferior and its price increases,

Answer 8

The income effect will be positive and the substitution effect will be negative

Question 9

If a good is normal and its price decreases,

Answer 9

the income effect will be positive and the substitution effect will be positive.

Question 10

Suppose a person’s utility is only a function of their consumption of diet soda and they do not care
which brand, Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that PDC < PDP. If PDC
rises to a point where PDC > PDP then the consumption of DC

Answer 10

Falls from a positive amount to zero