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Chaka consumes two goods x and y. Suppose that her (downward-sloping) demand curve for x shifts outward/upward (away from the origin). Consider, one by one, whether this shift might have been caused by the following changes, explaining your answers. Assume that nothing else changes besides the factors listed; for example, in (b) you should assume that only nominal income (I) changes and that Px and Py do not change.

(a) An decrease in Py, if x and y are substitutes. (b) An increase in nominal income I, if x is an inferior good. (c) A doubling in both Px and Py. (d) A decrease in Px.

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Ronald
RonaldLv2
28 Sep 2019

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Related questions

1. Economists use indifference curves to characterize the preferences of a rational consumer. There are some plausible assumptions that lead to a set of “well-behaved” (i.e., downward-sloping and strictly convex) indifference curves. Which one of the following is NOT among the assumptions?

a. All goods must be economic “goods.”

b. Preferences are complete.

c. Preferences are transitive.

d. All goods are normal goods

2. Given the prices of good X and Y, the (negative of the) slope of the budget constraint (i.e., - PX/PY) measures

a. the amount of good Y the consumer is willing to forgo in order to consume one more unit of good X.

b. the ratio of the consumer's income to the price of the X good.

c. the quantity of the Y good that must be forgone in order to purchase one more unit of the X good.

d. the quantity of the X good that must be forgone in order to purchase one more unit of the Y good.

3. Which of the following statements is incorrect for an inferior good?

a. An inferior good may have an upward-sloping demand curve.

b. The income elasticity of demand for an inferior good is negative.

c. An inferior good is an economic “bad.”

d. All of the above.

Assume that the U.S. dollar and the Japanese yen are the only two currencies in the world.

a. A bilateral nominal exchange rate S is the spot (now) exchange value of one currency in terms of the other and S can be written as dollars per 1 yen or yen per 1 dollar. If S = yen/1 dollar = 76.92 then the inverse 1/S gives dollars per 1 yen where 1/S = 1/(yen/1 dollar) = 1/76.92 = .013. If the 1/S increases to .014, has the dollar appreciated (1 dollar is worth more yen) or depreciated (1 dollar is worth less yen)? Explain.

b. Changes in demand and supply in the foreign exchange (FX) market determine the value of floating exchange rates S. If S is expressed as S = yen/1 dollar, then we have the FX market in terms of the demand and supply of dollars. (If S = dollars/1 yen, then we get the FX market in terms of the demand and supply of yen. Note also that no matter which currency the FX market is expressed, it is still an FX market where dollars are exchanged for yen. This means that an upward-sloping supply of dollars curve is exactly the same as a demand for yen curve and a downward-sloping demand for dollars curve is exactly the same as a supply of yen curve). Using S = yen/1 dollar and the FX market in terms of the demand and supply of dollars, an increase in S (dollar appreciation) leads to an increase in the number of dollars supplied (increase in the quantity of yen demanded). For dollar demand (or the supply of yen), an increase in S (dollar appreciation) leads to a decrease in the number of dollars demanded (or an increase in the number of yen supplied). The dollar demand curve shifts to the right if more yen are offered for dollars at any exchange rate S. An increase in dollar demand is caused mostly by private sector transactions in the current and capital accounts. Either an increase in demand for U.S. goods (merchandise trade in the current account) or an increase in demand for U.S. stocks and bonds (capital account inflows) will shift the dollar demand curve to the right. If private transactions in the current and capital accounts also cause shifts in the dollar supply curve, what are the corresponding factors that would lead to an increase in dollars supplied (yen demanded) at any exchange rate S?

1. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

a.70.67 utils.

b.10 utils.

c.12.25 utils.

d.20 utils.

2. If income rises, the budget constraint

a. Moves outward away from the origin

b. Does not move

c. Moves inward toward the origin

d. Moves farther down the vertical axis

3. Economists assume that the goal of consumers is to maximize total utility.

true/false

4. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?

a. $200

b. $240

c. $520

d. $280

e. not enough information to answer this question

5. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

6. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

a. diminishing; not assumed

b. increasing; assumed

c. diminishing; assumed

d. increasing; not assumed

7. Which of the following best describes an interpersonal utility comparison?

a. Usually, Smith seems a lot happier than Jones.

b. Smith gets more utility from working on his computer than Jones gets from working on his computer.

c. Smith usually eats more in a day than Jones eats in a day.

d. ones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc

e. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.

8. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because we need water to live and there is so much of it.

b. Because we need water to live and there is very little of it.

c. Because water is a fluid and we don't need fluids to live as much as we need food

d. Because water's price is low.

9.The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

a. That portion of good Z’s total utility curve must also lie below the horizontal axis.

b. That portion of good Z’s total utility curve must be upward sloping.

c. That portion of good Z’s total utility curve must be horizontal.

d. That portion of good Z’s total utility curve must be downward sloping.

10. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

true/false

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