EIA2007 Topic 2 Individual and Market Demand

Which of the following claims is true at each point along a price-consumption curve?

• Utility is maximized but income is not all spent

• All income is spent, but utility is not maximized.

• Utility is maximized, and all income is spent.

• The level of utility is constant.

An Engel curve is backward-bending when:

• the good is inferior after a certain level of income.

• the good is inferior at low levels of income.

• the good is inferior for all levels of income.

• the good is normal above a certain level of income.

After a good falls in price, consumers will tend to buy more of the good that has become cheaper

and less of those goods that are now relatively more expensive.  This fact is called:

• the income effect.

• the substitution effect.

• the wealth effect.

• the price effect.

A change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant, is referred to as:

• the income effect.

• the substitution effect.

• the wealth effect.

• the total effect of a price change.

A Giffen good

• is always the same as an inferior good.

• is the special subset of inferior goods in which the substitution effect dominates the income effect.

• is the special subset of inferior goods in which the income effect dominates the substitution effect.

• must have a downward sloping demand curve.

How do total expenditures on movie tickets vary along the demand curve?

• Since quantity demanded increases as price decreases, total expenditures increase.

• Since the quantity is sold at lower and lower prices, total expenditures decrease as quantity demanded increases.

• Total expenditures remain the same between points along the demand curve.

• Total expenditures increase through the upper portion of the curve and then decrease at low price

When demand is inelastic, an increase in price leads to:

• an increase in total expenditures.

• a decrease in total expenditures.

• no change in total expenditures.

• an undetermined change in expenditures.

Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4.  What happens if the government increases the federal gasoline tax?

• Consumer expenditures on gasoline increase over the short run and long run.

• Consumer expenditures on gasoline decline over the short run and increase over the long run.

• Consumer expenditures on gasoline increase over the short run and decline over the long run.

• Consumer expenditures on gasoline decrease over the short run and long run.

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called _______________:

When network externalities are present:

• we can obtain the market demand curve simply by summing individuals' demands.

• one person's demand also depends on the demands of other people.

• a person's demand cannot be affected by the number of other people who have purchased the good.

• the social cost of production is larger than the private cost.