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  -When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for frozen dinners? A)  Graph A B)  Graph B C)  Graph C D)  Graph D -When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for frozen dinners?


A) Graph A
B) Graph B
C) Graph C
D) Graph D

E) A) and B)
F) B) and C)

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As the price of a good rises,the consumer will experience


A) a desire to consume a different bundle.
B) a decrease in utility.
C) a southern or western movement on the indifference map.
D) All of the above.

E) A) and D)
F) B) and C)

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An individual's demand curve for a good can be derived by measuring the quantities selected as


A) the price of the good changes.
B) the price of substitute goods changes.
C) income changes.
D) All of the above.

E) B) and C)
F) A) and B)

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Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L0.5.Assuming a wage rate of $10 per hour,show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day.

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Rearranging yields U = (Y* + 10H)+ (24 - ...

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When measuring the substitution effect,one uses the change along


A) the old indifference curve.
B) the new indifference curve.
C) either the old or the new indifference curve.
D) the budget constraint.

E) A) and D)
F) B) and C)

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If consumer income and prices increase by the same percentage,


A) the consumer will buy more of both goods.
B) the consumer will buy more of both goods if they are both normal goods.
C) the consumer will buy less of both goods if they are both inferior goods.
D) the consumer's utility maximizing bundle stays the same.

E) A) and D)
F) None of the above

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When income increases by 1%,the quantity demanded of a good decreases by 2%.What is the income elasticity of the good? Is the good normal or inferior? Why?

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The income elasticit...

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For an inferior good,if the income effect more than offsets the substitution effect,we call that good


A) a Giffen good.
B) a normal good.
C) an inferior good.
D) a neutral good.

E) None of the above
F) A) and D)

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Inflation over time necessarily makes consumers worse off.

A) True
B) False

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  -When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for dining out? A)  Graph A B)  Graph B C)  Graph C D)  Graph D -When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for dining out?


A) Graph A
B) Graph B
C) Graph C
D) Graph D

E) A) and C)
F) None of the above

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B

Empirical studies have found that the labor supply curves for most parts of the population are


A) backward-bending.
B) upward-sloping.
C) downward-sloping.
D) nearly vertical.

E) B) and C)
F) A) and B)

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Sandy derives utility from consuming "all other goods," g,and clean air (measured by particulate matter removed per m3) ,a,as measured by the utility function U(g,a) = g0.6a0.4.The price of "all other goods" is $20 and the price of clean air (abatement) equals $10.Brian is the only other consumer in the market for clean air and demands 10 units of clean air.What is the market demand for clean air?


A) Total market demand is 14 units of clean air.
B) Total market demand is 12 units of clean air.
C) Total market demand is 10 units of clean air.
D) Total market demand is 16 units of clean air.

E) B) and C)
F) A) and B)

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The Fisher index


A) uses the arithmetic mean of the Paasche index and the Laspeyres index.
B) uses the standard deviation of the Paasche index and the Laspeyres index.
C) uses the geometric mean of the Paasche index and the Laspeyres index.
D) uses the harmonic mean of the Paasche index and the Laspeyres index.

E) None of the above
F) A) and B)

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C

As the price of a Giffen good falls,the consumer will


A) purchase more units.
B) purchase fewer units.
C) not change the amount purchased.
D) There is not enough information to answer this question.

E) B) and D)
F) A) and B)

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Under which of the following conditions will there be no substitution bias in the CPI?


A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods.
B) Higher-price goods increase in price by a greater percentage than do lower-priced goods.
C) All goods change in price by the same amount.
D) All goods change in price by the same percentage.

E) None of the above
F) B) and C)

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If the Engel curve for a good is upward sloping,the demand curve for that good must be downward sloping.

A) True
B) False

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True

The Affordable Care Act is intended to reduce the price of health care.A decrease in the price of health care may


A) increase the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect.
B) decrease the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect.
C) increase the number of doctors office visits if office visits are a normal good.
D) Both A and C.

E) All of the above
F) C) and D)

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A tax cut that raises the after-tax wage rate will most likely result in more hours worked if


A) tax rates were low already.
B) the relevant portion of the labor supply curve is upward sloping.
C) the relevant portion of the labor supply curve is downward sloping.
D) workers can be easily fooled.

E) All of the above
F) None of the above

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If workers are in the backward-bending section of their labor supply curves,than an increase in the income tax rate will


A) increase the tax revenue and increase the number of hours worked.
B) increase the tax revenue and decrease the number of hours worked.
C) decrease the tax revenue and increase the number of hours worked.
D) decrease the tax revenue and decrease the number of hours worked.

E) A) and B)
F) A) and C)

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Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,


A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.

E) A) and B)
F) B) and D)

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