SOLVED

7.2  Where Demand Curves Come From 1) Refer to Figure 7-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to A) the price and output effects. B) the income and substitution effects. C) the fact that marginal willingness to pay falls. D) the law of diminishing marginal utility. 2) Refer to Figure 7-1. Which of the following statements is true? A) Quantities Q0 and Q1 are the utility-maximizing quantities of hoagies at two different prices of hoagies. B) Quantities Q0 and Q1 may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer’s budget or the price of other goods. C) Quantity Q0 could be a utility-maximizing choice if the price is $5.75, but quantity Q1 may not be because we have no information on the marginal utility per dollar when price changes. D) Quantities Q0 and Q1 are derived independently of the utility-maximizing model. 3) In order to derive an individual’s demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change A) income and hold everything else constant. B) tastes and preferences and hold everything else constant. C) the price of the product and hold everything else constant. D) the price of a close substitute and hold everything else constant. 4) Along a downward-sloping linear demand curve, A) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. B) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. C) the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. D) the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant. 5) Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer’s budget. A) a normal good; very small B) an inferior good; very small C) a normal good; very large D) an inferior good; very large 6) The demand curve for a Giffen good is A) non-linear but downward-sloping. B) vertical. C) upward-sloping. D) non-existent. 7) Giffen goods A) are theoretical and have never been discovered in the real world. B) have not existed since prior to the Industrial Revolution. C) were proven to exist in the 1890s by Sir Robert Giffen. D) were not shown to actually exist until 2006. 8) Each price-quantity combination on a consumer’s demand curve shows the utility-maximizing quantity at the given price. 9) A Giffen good could be either a normal good or an inferior good. 10) The income effect of a price increase for a Giffen good outweighs the substitution effect. 11) The demand curve for an inferior good can never be downward-sloping. 12) The demand curve for a luxury good is upward-sloping. 13) What is a Giffen good? 14) What must be true in terms of the income effect, the substitution effect, and the type of good for the good’s demand curve to be upward sloping?