Econ 3332 Exam 3 - Assignment Essays

question

Amisha's Engel curve for potato chips is I = 300C, where I is weekly income and C measures the number of bags of potato chips. Amisha considers potato chips a(n):

answer

Normal Good

question

Suppose the price of a Giffen good, X, increases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

answer

less; an increase

question

To calculate the market demand curve from individual demand curves:

answer

horizontally sum the individual demand curves

question

Suppose there are 100 consumers, each with an identical demand curve given by Qi = 10 - 0.1P, where P is the price, and Qi measures the quantity demanded by each person. The market supply is given by QS = 20P - 200. The equilibrium price is ____.

answer

question

The income effect of a price change predicts that a fall in a good's price will _____ consumer purchasing power, leading to a(n) _____ in the consumption of inferior goods.

answer

increase; decrease

question

True or False: Utility is the difference between the consumer's assets and her liabilities.

answer

False

question

True or False: One person's utility cannot be compared to another person's utility.

answer

True

question

True or False: A utility function gives the relationship between a consumer's well-being and the quantity of goods and services consumed.

answer

True

question

True or False: Inputs into a utility function may include wool socks, DVD rentals, roller coaster rides, asparagus, and Sunday church services.

answer

True

question

Transivity!?!?

answer

...

question

Sofia's marginal utility of golf (G) is MUG = 1/G, and her marginal utility of music lessons (M) is MUM = 1/M. What is her marginal rate of substitution between golf and music lessons (MRSGM) when M = 10 and G = 4?

answer

2.5

question

Rohan is maximizing utility, subject to his limited income. As a result, which of the following statements is TRUE? He is not at a corner solution.

answer

His budget constraint is tangent to his indifference curve.

question

Assume good X is on the horizontal axis, and good Y is on the vertical axis. If a consumer's budget constraint has a slope of -2:

answer

the price of good X is greater than the price of good Y.

question

If a firm has market power but cannot prevent its customers from reselling the product, the firm will

answer

produce a quantity of output where marginal revenue equals marginal cost.

question

A firm practicing third-degree price discrimination may:
A. segment its customers by age, such as offering senior citizen discounts.
B. charge customers living in certain zip codes a higher price than customers living in other locations.
C. initially charge high prices and then reduce the price over time to sell to the more pricesensitive consumers.
D. do all of above.

answer

question

An indirect price discrimination strategy only works if the deal that is designed for each consumer group is in fact preferred by that specific group. This concept is called:

answer

Incentive Compatibility

question

In a Cournot oligopoly, as the number of firms increases, the market price:

answer

decreases

question

What four assumptions about consumers are needed to rationalize their preferences?

answer

Completeness, Transitivity, Monotonicity, Convexity

question

completeness and rankability

answer

consumers can compare and rank all possible bundles

question

Transivity

answer

the ability to logically combine relations to understand certain conclusions

question

monotocity and free disposal

answer

consumers never prefer to have less of any good or service without a change in the quantity of other things they consume

question

Convexity

answer

the more a consumer has of a particular good or service, the less they are willing pay to get even more of it, i.e., consumers like variety

question

utility function

answer

formula that assigns a level of utility to individual market baskets U(X, Y)
Cobb-Douglas: U = X^a * Y^b

question

marginal utility

answer

satisfaction or usefulness obtained from acquiring one more unit of a product

question

The utility George enjoys from consuming a bag of popcorn (P) and a candy bar (C) at a movie is given by the following utility function:
U = P^0.6 * C^0.4
Which yields more utility?

answer

Popcorn yields more utility

question

The utility George enjoys from consuming a bag of popcorn (P) and a candy bar (C) at a movie is given by the following utility function:
U = P^0.6 * C^0.4
Which function represents George's marginal utility of popcorn (MUp)?

answer

0.6P^-0.4 * C^0.4

question

Perfect substitutes

answer

two goods for which the marginal rate of substitution of one for the other is a constant

question

perfect complements

answer

two goods for which the MRS is zero or infinite; the indifference curves are shaped as right angles

question

An individual's indifference curves for hot dogs and hot dog buns are most likely:

answer

to be L shaped

question

budget constraint

answer

the limit on the consumption bundles that a consumer can afford

question

indifference curve

answer

a curve that shows consumption bundles that give the consumer the same level of satisfaction

question

Assume that prices for X and Y are PX = 90 and PY = 10, and income is I=1000? What is the optimal consumption bundle?

answer

X = 7.78
Y = 30
MRSXY = PX /PY ⇒ 2.33Y/X = 90/10 ⇒ Y = 3.86X plugging into the budget constraint: 90X+10(3.86X) = 1000 ⇒ X = 7.78 ⇒ Y = 30

question

income effect

answer

the change in consumption resulting from a change in real income

question

If the consumption of fresh cut flowers increases by 10% when consumers' incomes increase by 5%, fresh cut flowers are:

answer

luxury goods

question

income expansion path

answer

a curve that connects a consumer's optimal bundles at each income level

question

Engel Curve

answer

curve relating the quantity of a good consumed to income

question

Susan's income elasticity for canned meat is negative at each of her income levels and is positive for organic fruit. This implies that Susan's income expansion path along her optimal canned meat and organic fruit bundles will have a ____________ slope, and the Engel curve for canned meat will have a __________ slope.

answer

negative; negative

question

Consider a consumer with the following Cobb-Douglas utility function: U = 6X^0.7 * Y^0.3
What are the marginal utilities of products X and Y?

answer

MUx = 4.2(Y/X)^0.3
MUy = 1.8(X/Y)^0.7

question

Giffen good

answer

a good for which an increase in the price raises the quantity demanded

question

substitution effect

answer

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

question

At her current income level, Zeynab's income elasticity for frozen dinners is -0.75. If the price of frozen dinners decreases by 10%, the substitution effect will cause Zeynab to _________ her consumption of frozen dinners, and the income effect will cause Zeynab to ________ her consumption of frozen dinners.

answer

increase; decrease

question

partial equilibrium

answer

the process of examining the equilibrium conditions in individual markets and for households and firms separately

question

general equilibrium

answer

the condition that exists when all markets in an economy are in simultaneous equilibrium

question

Suppose the demand for apple juice is Qdaj = 40 - Paj +2Poj. If the supply of apple juice is Qsaj = Paj, the equilibrium price of apple juice is:

answer

Paj = 20 + Poj
Qdaj = Qsaj = 40 - Paj +2Poj = Paj = 20 + Poj

question

A small town has four residents: Amy, Bob, Cara, and Devon. Amy has a utility level of 20, Bob 30, Cara 10, and Devon 25. What is the measure of the small town's welfare using the utilitarian social welfare function?

answer

question

A small town has four residents: Amy, Bob, Cara, and Devon. Amy has a utility level of 20, Bob 30, Cara 10, and Devon 25. What is the measure of the small town's welfare using the Rawlsian social welfare function?

answer

question

Pareto Efficiency

answer

describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person worse off

question

What conditions need to be met for Pareto-efficient allocation?

answer

Exchange efficiency, input efficiency, and output efficiency

question

exchange efficiency

answer

a Pareto-efficient allocation of a set of goods across consumers

question

input efficiency

answer

a Pareto-efficient allocation of inputs across producers

question

output efficiency

answer

a mix of outputs that simultaneously supports exchange and input efficiency

question

production contract

answer

set of all efficient input allocations across producers

question

First Welfare Theorem

answer

Theorem stating that perfectly competitive markets in general equilibrium distribute resources in a Pareto-efficient way

question

Second Welfare Theorem

answer

theorem stating that any given Pareto-efficient allocation in a perfectly competitive market is a general equilibrium outcome for some initial allocation

question

complete information

answer

state of being fully informed about the choices that relevant economic actors face

question

incomplete information

answer

a situation in which actors in a strategic interaction lack information about other actors' interests and/or capabilities

question

Assymetric information

answer

When one party to a transaction has access to relevant information that the other party doesn't, i.e. doctor.

question

Suppose consumers value a genuine antique vase at $5,000, while they value a replica vase at $100. If potential online buyers cannot tell the difference between the two types of vases, and they believe there is a 60% chance that a particular vase is genuine and 40% chance that it is a replica, what is the highest price potential buyers would be willing to pay for a vase?

answer

$3,040

EV = $5,000 0.6 + $100 0.4 = 3,040

question

Suppose consumers value a genuine antique vase at $5,000, while they value a replica vase at $100. Potential online buyers cannot tell the difference between the two types of vases, and they believe there is a 60% chance that a particular vase is genuine and 40% chance that it is a replica. If a seller of a genuine antique vase values her vase at $4,000, which of the following is true?

answer

The seller will not offer the vase for sale.

EV = $5,000 0.6 + $100 0.4 = $3,040 < $4,000

question

Signaling

answer

an action taken by an informed party to reveal private information to an uninformed party

question

Moral Hazard

answer

When the act of insuring an event increases the likelihood that the event will happen

question

Susan recently purchased a high-quality flat screen TV and, because it was expensive, she bought an extended warranty that will replace her TV if it breaks for any reason. While Susan is at home watching her TV, she receives a weather alert informing her that a bad electrical storm is quickly approaching her area. Susan knows that she should unplug the TV to eliminate the possibility of a power surge (which would destroy the TV), but she chooses not to - she reasons that if there is a power surge, she has a warranty. This is an example of:

answer

moral hazard

question

asymetric information

answer

One party to a transaction has more info. than other party

1 of 63

question

Amisha's Engel curve for potato chips is I = 300C, where I is weekly income and C measures the number of bags of potato chips. Amisha considers potato chips a(n):

answer

Normal Good

question

Suppose the price of a Giffen good, X, increases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

answer

less; an increase

question

To calculate the market demand curve from individual demand curves:

answer

horizontally sum the individual demand curves

question

answer

question

The income effect of a price change predicts that a fall in a good's price will _____ consumer purchasing power, leading to a(n) _____ in the consumption of inferior goods.

answer

increase; decrease

question

True or False: Utility is the difference between the consumer's assets and her liabilities.

answer

False

question

True or False: One person's utility cannot be compared to another person's utility.

answer

True

question

True or False: A utility function gives the relationship between a consumer's well-being and the quantity of goods and services consumed.

answer

True

question

True or False: Inputs into a utility function may include wool socks, DVD rentals, roller coaster rides, asparagus, and Sunday church services.

answer

True

question

Transivity!?!?

answer

...

question

answer

2.5

question

Rohan is maximizing utility, subject to his limited income. As a result, which of the following statements is TRUE? He is not at a corner solution.

answer

His budget constraint is tangent to his indifference curve.

question

Assume good X is on the horizontal axis, and good Y is on the vertical axis. If a consumer's budget constraint has a slope of -2:

answer

the price of good X is greater than the price of good Y.

question

If a firm has market power but cannot prevent its customers from reselling the product, the firm will

answer

produce a quantity of output where marginal revenue equals marginal cost.

question

answer

question

An indirect price discrimination strategy only works if the deal that is designed for each consumer group is in fact preferred by that specific group. This concept is called:

answer

Incentive Compatibility

question

In a Cournot oligopoly, as the number of firms increases, the market price:

answer

decreases

question

What four assumptions about consumers are needed to rationalize their preferences?

answer

Completeness, Transitivity, Monotonicity, Convexity

question

completeness and rankability

answer

consumers can compare and rank all possible bundles

question

Transivity

answer

the ability to logically combine relations to understand certain conclusions

question

monotocity and free disposal

answer

consumers never prefer to have less of any good or service without a change in the quantity of other things they consume

question

Convexity

answer

the more a consumer has of a particular good or service, the less they are willing pay to get even more of it, i.e., consumers like variety

question

utility function

answer

formula that assigns a level of utility to individual market baskets U(X, Y)
Cobb-Douglas: U = X^a * Y^b

question

marginal utility

answer

satisfaction or usefulness obtained from acquiring one more unit of a product

question

The utility George enjoys from consuming a bag of popcorn (P) and a candy bar (C) at a movie is given by the following utility function:
U = P^0.6 * C^0.4
Which yields more utility?

answer

Popcorn yields more utility

question

answer

0.6P^-0.4 * C^0.4

question

Perfect substitutes

answer

two goods for which the marginal rate of substitution of one for the other is a constant

question

perfect complements

answer

two goods for which the MRS is zero or infinite; the indifference curves are shaped as right angles

question

An individual's indifference curves for hot dogs and hot dog buns are most likely:

answer

to be L shaped

question

budget constraint

answer

the limit on the consumption bundles that a consumer can afford

question

indifference curve

answer

a curve that shows consumption bundles that give the consumer the same level of satisfaction

question

Assume that prices for X and Y are PX = 90 and PY = 10, and income is I=1000? What is the optimal consumption bundle?

answer

X = 7.78
Y = 30
MRSXY = PX /PY ⇒ 2.33Y/X = 90/10 ⇒ Y = 3.86X plugging into the budget constraint: 90X+10(3.86X) = 1000 ⇒ X = 7.78 ⇒ Y = 30

question

income effect

answer

the change in consumption resulting from a change in real income

question

If the consumption of fresh cut flowers increases by 10% when consumers' incomes increase by 5%, fresh cut flowers are:

answer

luxury goods

question

income expansion path

answer

a curve that connects a consumer's optimal bundles at each income level

question

Engel Curve

answer

curve relating the quantity of a good consumed to income

question

answer

negative; negative

question

Consider a consumer with the following Cobb-Douglas utility function: U = 6X^0.7 * Y^0.3
What are the marginal utilities of products X and Y?

answer

MUx = 4.2(Y/X)^0.3
MUy = 1.8(X/Y)^0.7

question

Giffen good

answer

a good for which an increase in the price raises the quantity demanded

question

substitution effect

answer

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

question

answer

increase; decrease

question

partial equilibrium

answer

the process of examining the equilibrium conditions in individual markets and for households and firms separately

question

general equilibrium

answer

the condition that exists when all markets in an economy are in simultaneous equilibrium

question

Suppose the demand for apple juice is Qdaj = 40 - Paj +2Poj. If the supply of apple juice is Qsaj = Paj, the equilibrium price of apple juice is:

answer

Paj = 20 + Poj
Qdaj = Qsaj = 40 - Paj +2Poj = Paj = 20 + Poj

question

answer

question

answer

question

Pareto Efficiency

answer

describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person worse off

question

What conditions need to be met for Pareto-efficient allocation?

answer

Exchange efficiency, input efficiency, and output efficiency

question

exchange efficiency

answer

a Pareto-efficient allocation of a set of goods across consumers

question

input efficiency

answer

a Pareto-efficient allocation of inputs across producers

question

output efficiency

answer

a mix of outputs that simultaneously supports exchange and input efficiency

question

production contract

answer

set of all efficient input allocations across producers

question

First Welfare Theorem

answer

Theorem stating that perfectly competitive markets in general equilibrium distribute resources in a Pareto-efficient way

question

Second Welfare Theorem

answer

theorem stating that any given Pareto-efficient allocation in a perfectly competitive market is a general equilibrium outcome for some initial allocation

question

complete information

answer

state of being fully informed about the choices that relevant economic actors face

question

incomplete information

answer

a situation in which actors in a strategic interaction lack information about other actors' interests and/or capabilities

question

Assymetric information

answer

When one party to a transaction has access to relevant information that the other party doesn't, i.e. doctor.

question

answer

$3,040

EV = $5,000 0.6 + $100 0.4 = 3,040

question

answer

The seller will not offer the vase for sale.

EV = $5,000 0.6 + $100 0.4 = $3,040 < $4,000

question

Signaling

answer

an action taken by an informed party to reveal private information to an uninformed party

question

Moral Hazard

answer

When the act of insuring an event increases the likelihood that the event will happen

question

answer

moral hazard

question

asymetric information

answer

One party to a transaction has more info. than other party

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