Microeconomics An Intuitive Approach With Calculus 2nd Edition by Thomas Nechyba – Test Bank

Microeconomics An Intuitive Approach With Calculus 2nd Edition by Thomas Nechyba – Test Bank

Chapter 09

True / False

1. Unless a good is a Giffen good, the demand curve shifts to the right as income rises.
a. True
b. False
ANSWER: False
RATIONALE: Unless the good is an inferior good, the demand curve shifts to the right as income rises.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM

2. A downward sloping income-demand curve indicates that the good is a necessity.
a. True
b. False
ANSWER: True
RATIONALE: To be more precise, it indicates that a good is an inferior good — but all inferior goods are necessities, and thus the statement is true.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM

3. For the same sized substitution effect, own-price demand curves for inferior goods are steeper than own price demand curves for normal goods.
a. True
b. False
ANSWER: True
RATIONALE: This is true because the substitution and income effects point in the same direction for normal goods — thus making the slope of the demand curve shallower than it would be in the absence of the income effect (or in the presence of an income effect that points in the opposite direction.)
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM

4. If a good is quasilinear, its own-price demand curve is vertical.
a. True
b. False
ANSWER: False
RATIONALE: The own-price demand curve is vertical for goods that are borderline between regular inferior and Giffen, not goods that are borderline between normal and inferior.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM

5. Goods like exclusive designer clothes carry with them prestige value linked to their price. As a result, some people demand more of such goods as the price increases. For those people, such goods are Giffen goods.
a. True
b. False
ANSWER: False
RATIONALE: These are luxury goods that are composed of both the physical good as well as the prestige value associated with it. When price increases prestige value, the nature of the good changes when price increases — but the good itself is still a normal good in the sense that, were the prestige value to stay constant, an increase in price leads to less quantity demanded.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM

6. Assuming the same sized substitution effect, normal goods have steeper cross-price demand curves than inferior goods.
a. True
b. False
ANSWER: True
RATIONALE: If were quasilinear, bundle C would appear right above bundle B in the graph. If it is normal, C will lie to the right of B, and if it is inferior, it will lie to the left of B.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM