ECON MIDTERM 1

The change in consumption due to a change in​ price, holding purchasing power​ constant, is called the _____ _____

Two goods are _______ if an increase in the price of one good leads to a decrease in quantity demanded of the other.

The change in consumption due to a change in income, holding prices constant, is called the income effect.

True or false.

An Engel Curve shows combinations of

• income and prices

• two goods for different levels of prices

• income and the quantity consumed of one good

• two goods for different levels of income

An Engel curve

• slopes upward for normal goods and downward for inferior goods.

• slopes downward for both normal and inferior goods.

• 
  slopes upward for both normal and inferior goods.

• slopes upward for inferior goods and downward for normal goods.

When the price of good X​ increases, the substitution effect leads consumers to buy

• 
  less of good X and less of substitute goods.

• 
  more of good X and more of substitute goods.

• 
  more of good X and less of substitute goods.

• 
  less of good X and more of substitute goods.

When the price of good X increases and all goods​ (including X) are normal​ goods, the income effect leads consumers to buy ___ of ALL goods

measures the percentage change in one variable in response to a one percent increase in another variable.

the percentage change in quantity demanded resulting from a 1 percent increase in income.

When the optimal point on an indifference curve and budget line diagram is a corner​ solution,

• 
  the budget line must have a kink in it.

• 
  the marginal rate of substitution usually does not equal the ratio of prices for the two goods.

• 
  the consumer does not spend her entire budget on the two goods.

• ALL ANSWERS ARE CORRECT