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The substitution affect isolates the change in the consumption of a good caused by:
Correct answer(s):
- The change in the market rate of substitution
How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?
Correct answer(s):
- It decreases
What are the advantages to a firm of selling gift certificates?
Correct answer(s):
- Reduced strain on the refund department and greater quantity if your good is an inferior good
Which of the following is most likely not to be an example of a normal good?
Correct answer(s):
- Bus travel
If an increase in income causes a decrease in the consumption of good Y we know that good Y is:
Correct answer(s):
- An inferior good
If you are in the business of selling chicken and the price of selling chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?
Correct answer(s):
- Increase the inventory
Which of the following pairs of goods is probably not an example of substitutes?
Correct answer(s):
- Hamburgers and ketchup
After a price decrease for good X, the new consumer equilibrium level of good X will be:
Correct answer(s):
- Indeterminate without more information
At the point of consumer equilibrium the slope of the budget line is equal to the:
Correct answer(s):
- Marginal rate of substitution
If the price of good X increases, what will happen to the budget line?
Correct answer(s):
- It will become steeper
If a consumer’s income decreases, what will happen to the budget line?
Correct answer(s):
- It will shift inward
Given that income is $500 and PX = $20 and PY = $5, what is the market rate of substitution between goods X and Y?
Correct answer(s):
- -4
Given that income is $200 and the price of good Y is $40. What is the vertical intercept of the budget line?
Correct answer(s):
- 5
The upper boundary of the budget set is the:
Correct answer(s):
- Budget line
What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and PX = $5, PY = $10, X = 20, and M = 500?
Correct answer(s):
- 40
The combinations of goods X and Y that are affordable to the consumer are defined by the:
Correct answer(s):
- Budget set
The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the:
Correct answer(s):
- Budget constraint
The property that rules out indifference curves that cross is:
Correct answer(s):
- Transitivity
The property that implies that indifference curves are convex to the origin is:
Correct answer(s):
- Diminishing marginal rate of substitution
An increase in the price of good X will have what effect on the budget line on a normal X-Y graph?
Correct answer(s):
- Decrease the horizontal intercept