4 Demand, Revealed Preference, and Consumer Welfare Online Quiz Questions

True

False

The substitution effect raises consumption of the good, but the income effect tends to lower it.

Both the substitution effect and the income effect tend to raise consumption of the good.

Both effects tend to lower consumption of the good.

The substitution effect has no effect on consumption, while the income effect raises it.

The good becomes relatively cheaper than other goods.

The consumer’s real purchasing power increases.

The consumer’s budget set necessarily contracts.

The substitution effect makes the good whose price fell relatively more expensive.

The consumer chooses $A$ when $B$ is affordable, then chooses $C$ when $A$ is affordable.

The consumer chooses $A$ when $B$ is affordable, then chooses $A$ again when $B$ is affordable.

The consumer chooses $A$ when $B$ is affordable, then later chooses a different bundle $B$ when $A$ is affordable.

The consumer chooses $A$ when $B$ is not affordable, then later chooses $B$ when $A$ is affordable.

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False

It is the difference between willingness to pay and the amount actually paid.

For multiple units, it can be represented by the area below the demand curve and above the market price.

It is always an exact measure of the change in a person’s well-being, even when income effects matter.

It includes every social cost and benefit associated with a market change.

A change in income causes a movement along the demand curve; a change in the good’s own price shifts it.

A change in the good’s own price causes a movement along its demand curve; a change in income can shift the curve.

Either change always shifts the demand curve.

Either change always causes a movement along the demand curve.

Quasilinear preferences.

Any case in which a good is inferior.

Every case in which a consumer’s income is unchanged.

Any case in which the price change affects the budget line.

A normal good for which a price rise increases demand because the substitution effect is positive.

Any inferior good for which a price rise reduces purchasing power.

A good for which demand rises after a price increase only because its demand curve shifts.

An inferior good for which the opposing income effect is strong enough that a price rise increases demand.

The budget set contracts.

The budget set expands.

The budget set stays the same because prices did not change.

Only the relative prices of the goods change.

A change in income causes movement along the curve, while a change in own price shifts it.

Both changes cause shifts in the curve.

A change in own price causes movement along the curve, while a change in income can shift it.

Neither change affects the demand curve.

Both the substitution effect and the income effect tend to increase consumption of the good.

The substitution effect tends to increase consumption, but the income effect necessarily decreases it.

The income effect tends to increase consumption, but the substitution effect necessarily decreases it.

Neither effect changes consumption.

True

False