Quiz 2

Question 1

An income compensated demand curve

Answer 1

• is steeper than an ordinary demand curve for a normal good.
• is flatter than an ordinary demand curve for an inferior good.
• of a Giffin good will be negatively sloped.

Question 2

“In the graph below, as the consumer moves from indifference curve 1 to 3, his

Answer 2

real income is rising and his nominal income is constant.

Question 3

Which of the following price-quantity data would not be part of the demand curve derived from the graph below?

Answer 3

Price =0 quantity= 10

Question 4

A horizontal demand curve is

Answer 4

perfectly elastic

Question 5

“There has been much discussion over whether marijuana should be legalized. Assume that if it becomes legal the price will be cut in half. Given your text estimate of -1.0 price elasticity for marijuana, what would you expect to be the change in marijuana usage?”

Answer 5

it will increase by 50%

Question 6

Which of the following is likely to increase the elasticity of demand for a good?

Answer 6

A longer period of time.

Question 7

For the demand function P = 50 - 5Q,

Answer 7

the total revenue is the same whether the price is 20 or 30.

Question 8

The income elasticity of demand for an inferior good could be

Answer 8

negative

Question 9

For a Giffen good, the income effect is

Answer 9

greater than the substitution effect.

Question 10

“A war in the Middle-East increases the price of oil. Suppose that the price hike holds. Over what period of time would you expect the largest change in quantity?”

Answer 10

1 year

Question 11

“Refer to the graph below. Assume the consumer has an income of $100, the price of X is $2 and the price of Y is $1.
According to the graph, the income effect of a decrease in the price of X from $2 to $1 is equal to:”

Answer 11

5

Question 12

The income effect

Answer 12

moves in the opposite direction from the substitution effect for an inferior good.

Question 13

“Suppose the price of public transportation increases. You know that the income effect of this increase is 5,
the substitution effect is 10, but you do not know the signs. The total effect of the increase in the price of public transport could be either”

Answer 13

-15 or 5

Question 14

Other things equal, which of the following goods would have the most inelastic price elasticity of demand?

Answer 14

All shirts, of any color, sold in the U.S.

Question 15

A demand curve which has unit elasticity is

Answer 15

concave from above.

Question 16

A demand function that has a unitary elasticity at every point will

Answer 16

have a declining slope as price falls.

Question 17

The point on a linear demand curve where revenue is maximized is where

Answer 17

elasticity equals -1.

Question 18

If the demand for widgets is inelastic, revenues will ______ if the price of widgets increases.

Answer 18

increase

Question 19

“Say you own a kiosk where you sell T-shirts to other students. After conducting a quick survey you find that
at the current price the price elasticity of demand for your T-shirts is inelastic. Knowing this, if you wanted to increase the total revenue from selling T-shirts you should”

Answer 19

increase the price

Question 20

A linear demand curve

Answer 20

becomes less elastic as price falls.