econ 301 test 2 chapter 5 – Flashcards
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The substitution effect tends to be stronger if
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The goods are strong substitutes.
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A Giffen good
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has a stronger income effect than substitution effect
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If a good is inferior but not a Giffen good and the price of the good decreases
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the overall effect on the amount of the good purchased will be smaller than it would have been if the good were instead normal.
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If the price of an inferior good X increases and the income effect is stronger than the substitution effect
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the consumer's demand for good X will be upward sloping
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An increase in income alwaysq
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causes the consumer to buy less of a good whose income elasticity is negative
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The market for ramen noodles has only two consumers, David and Wallace. Market demand for macaroni and cheese will tend to be more elastic if:
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David and Wallace consider macaroni and cheese to be a normal good rather than an inferior good
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If a consumer's income increases and the new optimal bundle contains more of both goods:
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both goods are normal
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If the income elasticity of good X is positive and the income elasticity of good Y is negative, following a loss of income:
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the new optimal bundle will contain less X and more Y.
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Julie spends all of her income on gasoline and pizza. Gasoline costs $4 per gallon and pizza costs $2 per slice. When Julie's income is $50 per week, she purchases 5 gallons of gasoline and 15 slices of pizza. When her income rises to $80 per week, she buys 15 gallons of gasoline and 10 slices of pizza. Which of the following statements is true?
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Gasoline is a luxury good
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John spends all of his income on apples and oranges. He learns that orange juice may cause cancer. When apples are measured on the vertical axis and oranges are measured on the horizontal axis, this new knowledge:
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causes John's indifference curves to become flatter, reducing the number of oranges he will purchase at any price.
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The substitution effect of a price increase
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always causes the consumer to purchase less of the good that is now relatively more expensive
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Sara thinks of ramen noodles as a normal good, and Sean thinks of ramen noodles as an inferior good. If Sara and Sean have the same amount of income:
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Sean's demand for ramen noodles will be less price elastic than Sara's.
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If X and Y are complements and the price of Y increases, the substitution effect of this price change on the amount of X purchased will be
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weaker than it would have been if X and Y were substitutes
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If a good is normal
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an increase in the price of the other good will always cause the consumer to want less of it
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Gloria spends her income on two goods, X and Y. If the price of X decreases:
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Gloria is guaranteed to end up purchasing more Y if X is inferior
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The income effect tends to be stronger if:
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the consumer was purchasing a larger amount of the good before the price change.
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If X and Y are substitutes and the price of Y increases, then the overall effect of the price change on the amount of good X purchased will be
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an increase
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An Engel curve that is always upward sloping indicates that
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the good is always normal
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If good X is normal and good Y is inferior, following a loss of income
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the new optimal bundle will contain more Y and less X.
