Consumer and market behaviour

Starting at point A, which of the following represents the substitution effect of an increase in the price of food?

• The move from A to B

• The move from A to C

• The move from A to B, and then to C

• The move from A to C, and then to B

The effect of a decrease in the price of food, as depicted in the figure, leads us to believe that:

• food in an inferior good and clothing a normal good.

• food in a normal good and clothing an inferior good.

• both food and clothing are normal goods.

• both food and clothing are inferior goods

Scenario 4.1:

Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:

MUc = Qd MUd = Qc

Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.

See Scenario 4.1. What is Daniel's budget constraint?

• 240 = 3Pc + 3Pd

• 240 = 3Qc + 3Qd

• 240 = (Pc)(Qc)

• 240 = (Qc)(Qd)

Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:

MUc = Qd MUd = Qc

Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.

See Scenario 4.1. What is Daniel's income-consumption curve?

• Pc = Pd

• Pc = Qc

• Qd = I - 3Qc

• Qc = Qd

Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:

MUc = Qd MUd = Qc

Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.

What quantity Qc will maximize Daniel's utility given the information above?

• 0

• 24

• 40

• 60

You have just won a cash award of $500 for academic excellence.

• The substitution effect of this award will be larger than its income effect

• The income effect of this award will be larger than its substitution effect.

• The substitution and income effects will be of identical size.

• It is impossible to know whether the substitution effect is larger than the income effect or vice versa.

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

• A) positive; positive

• B) positive; negative

• C) negative; positive

• D) negative; negative

The horizontal summation of the demands of each consumer at different price levels is called:

• the market demand curve.

• the price elasticity of market demand.

• speculative demand.

• consumer surplus

The figure depicts the individual demands of the only three consumers in the market for good X. After constructing the market demand curve, we determine that quantity demanded at a price of $10.000 is:

• A) 15 units.

• B) 17 units.

• C) 30.000 units.

• D) none of the above

Aggregation examples of market demand could include:

• A) the demand for home computers by households with or without children.

• B) the domestic and foreign demand for wheat.

• C) the demands of different demographic groups.

• D) all of the above