If the demand for a good decreases with an increase in income, the good is:

Group of answer choices

An ordinary good.

An inferior good.

A Giffen good.

None of the other answers is correct.

A normal good.

Anthony consumes x1and x2in fixed proportions (i.e. they are perfect complements), with two units of x2to one of x1. His income consumption curve is:

Group of answer choices

A vertical line.

Negatively sloped.

A straight line with equation x1= 2x2.

A horizontal line.

A straight line with equation x2= 2x1.

Maria has a quasilinear utility function u = ln(x1) + x2, and maximises utility at an interior solution. Then:

Group of answer choices

None of the other answers is correct.

Her income consumption curve is a horizontal line.

Her indifference curves are horizontally parallel.

She will spend any increase in her income entirely on x2.

She will spend any increase in her income entirely on x1.

Peter's utility function is u = x10.25x20.75. His income elasticity of demand for good 2 is:

Group of answer choices

Between 0 and 1.

Greater than 1.

Equal to 1.

Cannot be determined without additional information.

Equal to 0.

An ordinary good is one for which:

Group of answer choices

Demand increases with an increase in income.

Demand decreases with an increase in income.

Demand increases with an increase in price.

Demand decreases with an increase in price.

None of the other answers is correct.

Natalie's utility function is u = (x1)2/3(x2)1/3. Her price consumption curve as the price of good 1 varies is:

Group of answer choices

A positively-sloped straight line from the origin.

A vertical line.

Cannot be determined without additional information.

Negatively sloped.

A horizontal line.

Anthony consumes x1and x2in fixed proportions (i.e. they are perfect complements), with two units of x2to one of x1. His own-price elasticity of demand for x1is:

Group of answer choices

Equal to 1.

Less than 1.

Equal to 0.

Between 1 and 0.

Greater than 0.

If there is an increase in p2, holding p1and m constant, there will be:

Group of answer choices

An increase in the relative price of x1, and an increase in purchasing power.

An increase in the relative price of x1, and a reduction in purchasing power.

None of the other answers is correct.

A fall in the relative price of x1, and an increase in purchasing power.

A fall in the relative price of x1, and a reduction in purchasing power.

A consumer has well-behaved preferences and is initially at an interior solution. If there is an increase in p2, holding p1and m constant, then:

Group of answer choices

The substitution effect increases demand for x2, while the income effect increases demand for x2when x2is normal.

The substitution effect increases demand for x2, while the income effect increases demand for x2when x2is inferior.

The substitution effect decreases demand for x2, while the income effect increases demand for x2when x2is normal.

None of the other answers is correct.

The substitution effect decreases demand for x2, while the income effect increases demand for x2when x2is inferior.

Which of the following statements is correct?

Group of answer choices

A Giffen good will always be an inferior good.

An inferior good will always be a Giffen good.

An ordinary good will always be a normal good.

An inferior good will always be an ordinary good.

None of the other answers is correct.

Adrian's endowment is (1, 2), and his final consumption bundle is (x1, x2). His net demand for good 1 is:

Group of answer choices

p1(x1 1).

x1 1.

x1.

1.

1 x1.

Adrian's endowment is (1, 2), and he has no other sources of income. Following an increase in p2(holding p1constant), his budget constraint will:

Group of answer choices

Pivot around the horizontal intercept, becoming flatter.

Pivot around his endowment bundle, becoming steeper.

Pivot around the vertical intercept, becoming flatter.

Pivot around the vertical intercept, becoming steeper.

Pivot around his endowment bundle, becoming flatter.

Adrian's endowment is (1, 2), and he has no other sources of income. Following an increase in p2(holding p1constant):

Group of answer choices

His budget set expands in the event that he is a net seller of good 2.

His budget set contracts regardless of whether he is a net buyer or net seller of good 2.

None of the other answers is correct.

His budget set expands regardless of whether he is a net buyer or net seller of good 2.

His budget set expands in the event that he is a net buyer of good 2.

Michelle has endowments of income of m1in period 1 and m2in period 2. If the interest rate is r, the present value of her endowments is:

Group of answer choices

None of the other answers is correct.

m1+ m2(1+r).

m1(1+r) + m2.

m1/(1+r) + m2.

m1+ m2/(1+r).

If Michelle is a saver and there is an increase in the interest rate, then she will experience:

Group of answer choices

An increase in the relative price of consumption in period 1, and an increase in purchasing power.

A decrease in the relative price of consumption in period 1, and a decrease in purchasing power.

None of the other answers is correct.

A decrease in the relative price of consumption in period 1, and an increase in purchasing power.

An increase in the relative price of consumption in period 1, and a decrease in purchasing power.

Michelle is a saver, and consumption in period 1 is a normal good. If there is an increase in the interest rate:

Group of answer choices

Both the substitution and income effects will increase consumption in period 1.

Cannot be determined without additional information.

The substitution effect will increase consumption in period 1, whereas the income effect will decrease it.

The substitution effect will decrease consumption in period 1, whereas the income effect will increase it.

Both the substitution and income effects will decrease consumption in period 1.

A risk-averse consumer:

Group of answer choices

None of the other answers is correct.

Is indifferent between having the certainty equivalent or the expected value for sure.

Is indifferent between playing a gamble or having the expected value for sure.

Prefers having the expected value for sure over playing a gamble.

Prefers playing a gamble over having the expected value for sure.

Questions 18 through 20 refer to the following information:

Shawn's consumption is subject to risk. With probability 0.75 he will enjoy 10000 in consumption, but with probability 0.25 he will have only 3600. His utility function for consumption is given by v(c) = c.

What is the expected value of Shawn's consumption?

What is his expected utility?

What is his certainty equivalent of having 10000 with probability 0.75 and 3600 with probability 0.25?