If the price of normal good X, rises, the income A. and substitution effects will both induce the consumer to buy more of X B. and substitution effects will both induce the consumer to buy less of X

If the price of normal good X, rises, the income

A. and substitution effects will both induce the consumer to buy more of X

B. and substitution effects will both induce the consumer to buy less of X

C. effect will induce the consumer to buy less of X and the substitution will induce him to buy more

D. effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less

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Final Examination Study Guide
ETH/557 Version 2
1
ETH/557 Final Examination Study Guide
This study guide will prepare you for the Final Examination you will complete in Week Six. It contains
practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings
and your student guide as study references for the Final Examination.
Week One: Economics
Objective: Distinguish between statements made from the perspective of positive and normative
economics.
1.”Economics is concerned with using scarce productive resources efficiently in attempting to satisfy
society’s economic wants.” This statement is
a.
positive and correct
b.
positive, but incorrect
c.
normative, but incorrect
d.
normative and correct
Objective: Explain the conditions necessary for market efficiency.
2.If an economy produces its most wanted goods and uses up-to-date production methods, it is
a.
engaged in roundabout production
b.
achieving both productive and allocative efficiency
c.
achieving productive efficiency, but not allocative efficiency
d.
not achieving productive efficiency
Objective: Explain the economizing problem and the models used in economics.
3.The economizing problem is one of deciding how to make the best use of
a.
virtually unlimited resources to satisfy virtually unlimited wants
b.
limited resources to satisfy virtually unlimited wants
c.
unlimited resources to satisfy limited wants
d.
limited resources to satisfy limited wants
4.The concept of economic efficiency is primarily concerned with
a.
the limited wants-unlimited resources dilemma
b.
considerations of equity in the distribution of wealth
c.
obtaining the maximum output from available resources
d.
the conservation of irreplaceable natural resources
Objective: Analyze the characteristics of the market system and how they operate.
5.If an economy is operating on its production possibilities curve, an increase in the production of capital
goods
a.
necessarily involves an increase in the division of labor
b.
is in conflict with the concept of consumer sovereignty
c.
necessitates production of fewer consumer goods
d.
will impair future productive efficiency

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Final Examination Study Guide
ETH/557 Version 2
2
Week Two: Price and Consumer Behavior
Objective: Analyze the interaction of supply, demand, and price ceilings on the market equilibrium
price.
6.In which of the following instances will the effect on equilibrium price be dependent on the magnitude of
the shifts in supply and demand?
a.
Demand rises and supply rises
b.
Supply falls and demand remains constant
c.
Demand rises and supply falls
d.
Supply rises and demand falls
Objective: Apply the concepts of elasticity to changes in product price, consumer income, and
competitor price.
7.The price of product
X
is reduced from $100 to $90 and, as a result, the quantity demanded increases
from 50 to 60 units. Therefore, demand for
X
in this price range
a.
has declined
b.
is of unit elasticity
c.
is inelastic
d.
is elastic
8.The concept of price elasticity of demand measures
a.
the slope of the demand curve
b.
the number of buyers in a market
c.
the extent to which the demand curve shifts as the result of a price decline
d.
the sensitivity of consumer purchases to price changes
Objective: Explain how the concepts of utility, income, and substitution predict consumer
behavior when a price changes.
9.Suppose that Jean normally orders three tacos, but on seeing that their price has gone up, decides to
buy only two. Jean’s decision is best explained by
a.
income and substitution effects
b.
the law of supply
c.
the principle of comparative advantage
d.
the law of increasing opportunity costs
Objective:
10. Which of the following is correct? When the price of normal good
Z
falls
a.
both income and substitution effects cause the consumer to buy more
b.
both income and substitution effects cause the consumer to buy less
c.
the income effect causes the consumer to buy less, but the substitution effect causes her to buy
more

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