1. An individuals demand curve: a. represents the various quantities that a cons
ID: 1141741 • Letter: 1
Question
1. An individuals demand curve:
a. represents the various quantities that a consumer is willing to purchase of a good at various price levels.
b. is derived from an individual's indifference curve map.
c. will shift if preferences, prices of other goods, or income change.
d. all of these answers are correct.
2. Elasticity measures:
a. The slope of a demand curve.
b. The inverse of the slope of a demand curve.
c. The percentage change in one variable in response to a one percentage increase in another variable.
d. The percentage change in one variable in response to a change in another variable.
3. Which of the following statements with regard to the substitution effect of a price change is false?
a. It is represented by a shift from one indifference curve to another.
b. It involves an increase in the quantity demanded of one good when its price falls.
c. It results from a change in the relative price of a good while holding satisfaction constant.
d. None of the above.
4. The income effect of a price change:
a. reflects the change in an individual’s real income as a result of a change in the price of the good.
b. is shown by a movement from one indifference curve to another.
c. reinforces the substitution effect for a normal good.
d. all of the above.
5. For an inferior good, the income and substitution effects:
a. Work together.
b. Work againsts each other.
c. Can work together or in opposition to each other depending upon their relative magnitudes.
d. Always exactly cancel each other.
Explanation / Answer
Ans. These are interesting MCQs , Let's start answering them :
1) d ) All of these answers are Correct - Because Demand Curve surely represents the various quantities that the consumer is willing to buy at different price , Several Factors determine a Shift in Demand Curve like Income , Preference etc and Demand Curve can also be Derived from Indifference Curves.
2) c ) A percentage change in one variable in response to one percent change in other Variable - Because we know that Elasticity shows the % change in One Variable because of % change in other variable. Here , Percentage word is very essential.
3) b ) It involves an increase in the Quantity Demanded of One Good when it's Prices falls. This statement is false because substitution effect does not deal with the Change in Price of Own Good , rather it deals with change in Price of Relative Goods.
4) d) All of the above options are correct. Income effect do effect the change in Real income of a consumer when Price for a good changes and it can be shown by a Shift in the Indifference Curve too. Income effect also reinforces the Substitution Effect in case of a Normal Good.
5) b ) Always work against Each Other. In case of Inferior Goods , Both income effect and substitution effect works against each other because Substitute effect will work the same ie Consumer would substitute for the Good whose price have decreased but In Case of Income effect , An Increase in Real income of the Consumer , would induce the Consumer to buy Less Inferior Goods.
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