Chapter 4 Demand

1．As we move downward along a demand curve for apples,

A) consumer well-being decreases.
B) the marginal utility of apples decreases.
C) the marginal utility of apples increases.
D) Both A and B are true

2.Which of the following is true regarding income along a price-consumption

curve?
A) Income is increasing.
B) Income is decreasing.
C) Income is constant.
D) The level of income depends on the level of utility.

3. Use the following statements to answer this question:

I. The income-consumption curve for perfect complements is a straight line.
II. The price-consumption curve for perfect complements is a straight line.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

4. Which of the following is true concerning the substitution effect of a decrease in

price?
A) It will lead to an increase in consumption only for a normal good.
B) It always will lead to an increase in consumption.
C) It will lead to an increase in consumption only for an inferior good.
D) It will lead to an increase in consumption only for a Giffen good.

5. Which of the following is true concerning the income effect of a decrease in

price?
A) It will lead to an increase in consumption only for a normal good.
B) It always will lead to an increase in consumption.
C) It will lead to an increase in consumption only for an inferior good.
D) It will lead to an increase in consumption only for a Giffen good.

6) Assume that beer is an inferior good. If the price of beer falls, then the
substitution effect
results in the person buying __________ of the good and the income effect results
in the person
buying __________ of the good.
A) more, more
B) more, less
C) less, more
D) less, less

7. You consume good X (horizontal axis) and good Y (vertical axis), and your
indifference curves
are vertical lines because you do not gain any satisfaction from consumption of Y.
As the price
of X declines, the change in consumption of X is entirely composed of the:
A) income effect. B) substitution effect.
C) Giffen effect. D) independent good effect.

8) When a good is price inelastic, consumer expenditures on the good

A) increase when price increases.
B) decrease when price increases.
C) do not change when price increases.
D) are not related to price elasticity of demand.

9. To determine whether an increase in the price of gasoline results in a consumer

spending a
larger share of their expenditure on gasoline we need to know
A) only how much money the consumer spends on gasoline before the price
change
B) only the change in the price of gasoline
C) only the change in the price of gasoline as a percentage of the original price
D) only the own price elasticity of demand for gasoline

10. Suppose the market demand curve for hourly dial-up internet service is
completely elastic. At
the market equilibrium price under perfect competition, the consumer surplus in
this market
equals:
A) total consumer expenditures.
B) total sales revenue.
C) zero.
D) an amount slightly more than total consumer expenditure

11. The bandwagon effect corresponds best to which of the following?

A) Snob effect
B) External economy
C) Negative network externality
D) Positive network externality

12. When the snob effect exists, a change in price is likely to

A) change total revenue less than if there were no network externalities.
B) change total revenue more than if there were no network externalities.
C) change total revenue the same amount as if there were no network
externalities.
D) not change total revenue at all.

13．The price of good A goes up. As a result the demand for good B shifts to the
left. From this
we can infer that:
A) good A is a normal good.
B) good B is an inferior good.
C) goods A and B are substitutes.
D) goods A and B are complements.
E) none of the above

14. An individual demand curve can be derived from the __________ curve.
A) price-consumption
B) price-income
C) income-substitution
D) income-consumption
E) Engel

15. Which of the following claims is true at each point along a price-consumption
curve?
A) Utility is maximized but income is not all spent.
B) All income is spent, but utility is not maximized.
C) Utility is maximized, and all income is spent.
D) The level of utility is constant.

16. Good A is a normal good. The demand curve for good A:

A) slopes downward.
B) usually slopes downward, but could slope upward.
C) slopes upward.
D) usually slopes upward, but could slope downward

17.When the price of wood (which is an input in the production of furniture) falls,
the consumer surplus associated with the consumption of furniture
A) increases. B) decreases.
C) does not change. D) could be any of the above.

18. When a good has a unitary price elasticity, consumer expenditures for the
good
A) change in the same direction as a price change.
B) change in the opposite direction to a price change, but not necessarily by the
same
percentage as the price change.
C) do not change when the price of the good decreases.
D) change in the opposite direction and by the same percentage as any price
change.

19. As the price of good X increases from $5 to $8, quantity demanded falls from
100 to 80. Based
upon this information we can conclude that the demand for X is
A) elastic. B) inelastic.
C) unit inelastic. D) insufficient information for judgment.

20. Consider a particular market-clearing price and quantity under a perfectly

competitive
equilibrium. As the demand curve at this point becomes more inelastic, the
consumer surplus
in the market tends to:
A) increase.
B) decrease.
C) remain the same.
D) We do not have enough information to answer this question.