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Exam 5: Some Applications of Consumer Demand, and Welfare Analysis

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Question 1

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A perfectly inelastic demand curve is perfectly vertical, representing zero quantity response to a price change.

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Question 2

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According to the price and income multiplication property of demand, if we multiply all the prices in an economy and the income of its agents by the same factor, then the demand for any given good will

A) not change
B) increase
C) decrease

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Question 3

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A measure of how much income must be given to a consumer after a price change to leave the consumer at the same level of utility the consumer had attained before the price change occurred is called

We determine the market demand curve by adding individual demand curves

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. What is the cost of achieving 20 units of utility?

An explanation for why people view a loss more importantly than a gain is

A measure of consumer surplus determined by the area under the compensated demand curve is known as the

The elasticity of demand measure the percentage change in the price of a good that results from a given percentage change in its demand.

A characteristic of demand for a good where, at a given price, a 1% change in the price leads to a less than 1% change in the quantity demanded is called inelastic demand.

The expenditure function identifies the maximum amount of income that we must give a consumer in order to allow the consumer to achieve a predetermined level of utility at given prices.

The paradox of crime prevention is the cost of engaging in any activity or the opportunity forgone by choosing that particular activity.

List the three properties of demand functions.

Caroline Sierra loves to eat raspberry-apple cobblers, but will only do so if the raspberries and apples are used in the ratio of 3 ounces of raspberries to 2 ounces of apples. Assume that each cobbler uses exactly 3 ounces of raspberries and 2 ounces of apples. Each cobbler eaten yields 1 unit of utility, and the utility of cobblers is linear in the number eaten. Say the price of raspberries is $5 per ounce and the price of apples is $2 per ounce. It costs $190 to achieve a utility level of 10. Then a tax is placed on raspberries so that their price increases from $5 to $10 per ounce. What is the price-compensating variation?

A measure of consumer surplus determined by the area under the compensated demand curve is the approximate measure of consumer surplus.

-Refer to Exhibit 5-1. Which demand curve is perfectly elastic?

Describe how society can lower the dishonest wage.

What is the difference between the exact measure and the approximate measure of consumer surplus?

Because they are the only ones we can observe by looking at data on prices and quantities, we are forced to work with

The Slutsky equation portrays

Elastic demand is a characteristic of demand for a good where, at a given price, a 1% change in the price of a good leads to ____________ 1% change in the quantity demanded of that good.