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Your Results for: "Multiple Choice"
Site Title: Microeconomics, Sixth Edition Summary of Results
Book Title: Microeconomics
85% Correct of 20 Scored items:
Location on Site: Chapter 4 > Study Guide > Multiple Choice 17 Correct: 85%
Date/Time December 10, 2010 at 8:15 AM (EST) 3 Incorrect: 15%
Submitted: More information about scoring

Assuming convex indifference curves for two goods, as the price of one good falls, a consumer
1. will always

Your Answer: All of the above.

Correct Answer: reach a higher level of utility.

Incorrect. As the price of a good decreases, the budget line rotates outward. In real terms,
the consumer is able to purchase more. Therefore, the consumer will reach a higher level of
utility. How the consumer allocates her budget depends on the actual shape of the indifference
curves.

A price-consumption curve traces the utility-maximizing combinations of two goods as

2.
Your Answer: the price of one good changes.

Correct. The price-consumption curve traces the utility-maximizing combinations of two goods
as the price of one changes.

Along an individual demand curve for food, which one of the following is not held constant?
3.
Your Answer: All of the above.
Correct Answer: The consumer's level of utility.

Incorrect. The demand curve for a good is derived by mapping out the equilibrium quantities
of that good that result from changing the price of that good, holding income and the price of
all other goods constant. As a result, utility increases as price falls.

Suppose that the quantity of food is measured on the horizontal axis and the quantity of
4. clothing is measured on the vertical axis. If the price consumption curve for food is vertical
then

Your Answer: the demand for food is perfectly inelastic.

Correct. A vertical price consumption path implies that the quantity of food demanded is the
same at every price.

Which two variables are in the axes of a graph that shows an income-consumption curve?
5.
Your Answer: The quantities of two goods.

Correct. The income-consumption curve traces the utility-maximizing combinations of two

goods as a consumer's income changes.

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If food is an inferior good, then

6.
Your Answer: its Engel curve will be negatively sloped.

Correct. An inferior good is defined as a good for which quantity demanded decreases as
income increases. The Engel curve shows the relationship between income and quantity
demanded.

Fill in the blanks. The substitution effect shows the change in consumption of a good associated
7. with a __________ price and a _________ level of utility.

Your Answer: changing...constant

Correct. The substitution effect is the change in consumption of a good associated with a
change in its price, with the level of utility held constant.

Fill in the blanks. The income effect shows the change in consumption of a good associated
8. with a _________ relative price and a _________ purchasing power.

Your Answer: constant...changing

Correct. The income effect is the change in consumption of a good resulting from an increase
in purchasing power, with relative price held constant.

The income and substitution effects of a decrease in the price of an inferior good are such that
9.
Your Answer: the substitution effect is positive but the income effect is negative.

Correct. The income effect is negative but not greater than the (positive) substitution effect.

Suppose that the substitution effect of a decrease in the price of food is the same for both
10. Harry and Sally. However, Harry feels that food is an inferior good while Sally feels that food
is a normal good. As a result,

Your Answer: Harry's demand curve for food will be steeper than Sally's.

Correct. For a given price decrease, both Harry and Sally experience an increase in real
income. Since food is an inferior good for Harry, he will not increase his quantity demanded of
food as much as Sally will increase hers. Thus, Harry's demand curve is steeper because the
income effect is less for Harry than for Sally.

A Giffen good is characterized by

11.
Your Answer: All of the above.

Correct. A Giffen good is a good whose demand curve slopes upward because the (positive)
income effect is larger than the (negative) substitution effect.

When the price of food increases, Jimmy spends more of his fixed income on food than he did
12. before. It must be true that Jimmy's demand for food

Your Answer: is relatively inelastic.

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Correct. Total expenditure on a good will increase when the price of a good increases if
demand is relatively inelastic.

The price of grapes is different each week at the supermarket. Yet, Marge spends exactly $10
13. on grapes each week. It must be true that Marge's demand for grapes

Your Answer: is unit elastic.

Correct. Total expenditure on a good will not change when the price of a good changes if
demand is unit elastic.

Martha's demand for spring water has a price elasticity of –3.0. A recent tax that caused the
14. price of spring water to increase by 20% will cause Martha to decrease her quantity demanded
of spring water by

Your Answer: 60%.

Correct. Since price elasticity of demand is the percent change in quantity divided by the
percent change in price, % change in Q /20% = -3. Rearranging yields % change in Q = -60%.

Greg, Bobby, and Peter are the only consumers of camera film in a certain small town. Greg's
15. demand is Q = 100 – 2P. Bobby's demand is Q = 25 – P. Peter's demand is Q = 75 – 7P. The
market demand for film in that town is

Your Answer: Q = 200 – 10P.

Correct. QMARKET = QGREG + QBOBBY + QPETER = (100 – 2P) + (25 –P) + (75 – 7P) = 200 –
10P

The market demand for photo film in a given town is Q = 500 – 10P where Q is measured as
16. rolls of film developed per week and P is the price per roll. If the price is $5, how much is the
consumer surplus in the market for film?

Your Answer: $10,125

Correct. At that price, 450 rolls will be purchased. The demand intersects the vertical axis at a
reservation price of $50. Consumer surplus is the area [($50 - $5) * 450] / 2 = $10,125.

Sam is willing to part with his old car for no less than $5,000. Bob likes the car and would pay
17. as much as $8,000 for it. After lengthy negotiations, they agree on a price of $7,000. As a
result of the deal, Bob will enjoy a consumer surplus equal to

Your Answer: $1,000.

Correct. Bob actually pays $7,000 and is willing to pay $8,000. The difference is $1,000.

Suppose the demand for bridge crossings at a certain remote site is P = 100 – 2Q where Q is
18. measured as crossings per year and P is measured as $ per crossing. What is the value to
consumers of building a bridge at that site?

Your Answer: $2,500

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Correct. The total value to consumers is the area under the demand curve. The demand
intersects the horizontal axis at a quantity of 50. Thus the area under the demand curve is
(100 * 50) / 2 = $2,500.

In response to a growth in demand, the quantity demanded of a good with a (mild) negative
19. network externality

Your Answer: rises but by less than it would without the externality.

Correct. When a negative externality exists, there is a snob effect that subtracts from the pure
effect of a price change. For example, when price decreases, quantity demanded in the
market decreases but by less than anticipated. This occurs because market demand shifts
leftward as price decreases and quantity demanded increases. See figure 4.17 in the textbook.

An isoelastic demand curve is one in which

20.
Your Answer: All of the above.
Correct Answer: price elasticity and income elasticity remain constant.

Incorrect. An isoelastic demand curve is a demand curve with a constant price elasticity.

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