ECON 207 - Term Test Practice With Complete Solutions

ECON 207 - Term Test Practice With
Complete Solutions

If the prices of all goods increase by the same proportion as income, the
quantity demanded of good X will:
a. decrease.
b. increase.
c. remain unchanged.
d. change in a way that cannot be determined from the information given. -
ANSWER c.
remain unchanged.

With only two goods, if the income effect is in the opposite direction as the
substitution effect butthe income effect dominates then the good is
Select one:
a. normal
b. inferior but not Giffen
c. Giffen
d. There is not enough information to answer. - ANSWER c. Giffen

Suppose a person's utility is only a function of their consumption of diet soda
and they do not care which brand, Diet Coke (DC) or Diet Pepsi (DP) they
consume. Suppose further that PDC < PDP. If PDC rises but it remains less than
PDP then the consumption of DC
Select one:
a. Falls from a positive amount to zero
b. Falls from a positive amount to another positive amount.
c. rises.
d. stays at zero. - ANSWER Falls from a positive amount to another positive
amount.

If a good is normal and its price decreases,
Select one:
a. the income effect will be positive and the substitution effect will be positive.
b. the income effect will be negative and the substitution effect will be negative.
c. the income effect will be positive and the substitution effect will be negative.
d. the income effect will be negative and the substitution effect will be positive. -
ANSWER a.
the income effect will be positive and the substitution effect will be positive.

Consider the two statements:
I.X is an inferior good.

, II.X exhibits Giffen's Paradox.
Which of the following is true?
Select one:
a. I implies II, but II does not necessarily imply I.
b. II implies I, but I does not necessarily imply II.
c. I and II are statements of the same phenomenon. - ANSWER b.
II implies I, but I does not necessarily imply II.

With only two goods, if the income effect is in the same direction as the
substitution effect then the good is
Select one:
a. normal
b. inferior but not Giffen
c. Giffen
d. There is not enough information to answer. - ANSWER a. normal

If a good is inferior and its price decreases,
Select one:
a. the income effect will be positive and the substitution effect will be positive.
b. the income effect will be negative and the substitution effect will be negative.
c. the income effect will be positive and the substitution effect will be negative.
d. the income effect will be negative and the substitution effect will be positive. -
ANSWER d. the income effect will be negative and the substitution effect will be
positive.

An individual's demand curve
Select one:
a. represents the various quantities that a consumer is willing to purchase of a
good at various price levels.
b. is derived from an individual's indifference curve map.
c. will shift if preferences, prices of other goods, or income change.
d. all of the above - ANSWER d.
all of the above.

If good X is a normal good and its price rises, then quantity demanded
Select one:
a. may or may not fall.
b. will always fall.
c. will always rise.
d. will remain unchanged. - ANSWER b. will always fall.

If an individual buys only two goods and these must be used in a fixed
relationship with oneanother (e. g. , coffee and cream for a coffee drinker who
never varies the amount of cream used ineach cup), then
Select one:
a. there is no substitution effect from a change in the price of coffee.