Question : 51) Consider the income and substitution effects of price changes. : 1384186

 

51) Consider the income and substitution effects of price changes. The substitution effect is the change in quantity demanded that occurs

A) as a result of a change in absolute prices, with real income held constant.

B) as a result of a change in relative prices with money income held constant.

C) as a result of a change in relative prices, with real income held constant.

D) when one good is substituted for another.

E) with a change in the relative prices of two or more goods.

52) Consider the income and substitution effects of price changes. The income effect refers to the change in quantity demanded that occurs as a result of a change in

A) money income, with relative prices held constant.

B) real income, with relative prices held constant.

C) relative prices, with real income held constant.

D) marginal utility, with real income held constant.

E) preferences, with real income held constant.

53) Consider the income and substitution effects of price changes. If the price of a normal good changes, the income effect of the price change will

A) always be larger than the substitution effect.

B) always be to increase quantity demanded.

C) reinforce the substitution effect.

D) produce a positively sloped demand curve.

E) oppose the substitution effect.

54) Suppose a consumer can purchase only two goods, soap and apples. If the price of soap falls and the consumption of apples increases, we can conclude that the increased consumption of apples is due to

A) neither the income effect nor the substitution effect.

B) both the income effect and the substitution effect.

C) the income effect only.

D) the substitution effect only.

E) the deflation effect.

55) Suppose there are only two goods, A and B, and that consumer income is constant. If the price of good A falls and the consumption of good B rises, we can conclude that

A) A is a normal good.

B) B is a normal good.

C) A is an inferior good.

D) B is an inferior good.

E) both A and B are normal goods.

56) A demand curve for a normal good is downward sloping due to

A) the income effect.

B) the substitution effect.

C) the combination of income and substitution effects.

D) neither the substitution effect nor the income effect.

E) the Giffen effect.

57) Consider the income and substitution effects of price changes. For a product with an income elasticity greater than one, a price increase will cause the consumer’s real income to

A) rise and the quantity purchased to fall.

B) fall and the quantity purchased to fall.

C) rise and the quantity purchased to rise.

D) fall and the quantity purchased to rise.

E) remain constant.

58) Suppose the price of potatoes falls and we observe a decrease in an individual’s purchases of potatoes. Which of the following can we infer?

A) The income effect is negative and outweighs the substitution effect.

B) The income effect is negative and reinforces the substitution effect.

C) The income effect just offsets the substitution effect.

D) The income effect is positive and exceeds the substitution effect.

E) The substitution effect outweighs the income effect.

59) The substitution effect of a price change

A) will result in the consumer buying less of a good at a lower price.

B) will result in the consumer buying less of a good at a higher price.

C) outweighs the income effect for Giffen goods.

D) is equal to the income effect for normal goods.

E) is equal to the income effect for inferior goods.

60) If the income effect of a price change is negative and larger in absolute terms than the substitution effect, then the demand curve will be

A) upward sloping.

B) downward sloping.

C) vertical.

D) horizontal.

E) of indeterminate slope.

 

 

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