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1. If a rise in the price x causes less y to be demanded:
a.
x and y are gross complements.
b.
x and y are gross substitutes.
c.
x and y are net complements.
d.
x and y are net substitutes.
2. With only two goods, x and y, if x and y are gross substitutes, a rise in px must necessarily:
a.
increase spending in x.
b.
reduce spending in x.
c.
increase spending in y.
d.
reduce spending in y.
3. Two goods are Hicks (net) substitutes if a rise in the price of one causes a(n):
a.
decline in the quantity demanded of the other holding nominal income constant.
b.
increase in the quantity demanded of the other holding nominal income constant.
c.
decline in the quantity demanded of the other holding utility constant.
d.
increase in the quantity demanded of the other holding utility constant.
4. With the Cobb-Douglas utility function , x and y are:
a.
net and gross substitutes.
b.
net substitutes and gross complements.
c.
net substitutes and neither gross substitutes or complements.
d.
net and gross complements.
5. In the Slutsky equation for , the income effect is given by:
a.
.
b.
.
c.
.
d.
.
6. The primary additional insight provided by expanding the theory of demand from two to three goods is that a pair of
goods may now be:
a.
gross substitutes.
b.
gross complements.
c.
net substitutes.
d.
net complements.
7. "Hicks' Third Law of Demand" states that "most" goods must be:
a.
gross substitutes.
b.
gross complements.
c.
net substitutes.
d.
net complements.
8. Quasi-concavity of utility functions insures that with only two goods, these goods must be:
a.
gross substitutes.
b.
gross complements.
c.
net substitutes.
d.
net complements.
9. If goods x and y are complements, then the cross price elasticity of demand between them will be:
a.
positive.
b.
negative.
c.
zero.
d.
infinity.
10. If utility is separable in a three-good utility function x3 then
for changes in must:
a.
both be gross substitutes for x1.
b.
both be gross complements for x1.
c.
be such that if one is a gross substitute for x1, the other is a gross complement for x1.
d.
both be gross substitutes or both be gross complements for x1.
11. For the "Composite Commodity Theorem" to hold, all goods in the composite must:
a.
have constant prices.
b.
have constant relative prices.
c.
be used in fixed proportions.
d.
be net complements.
12. The attributes model of consumer choice explains the possibility that an individual does not purchase a particular
good, z by assuming:
a.
the person's preferences do not favor z.
b.
linear combinations of other goods dominate z.
c.
that is less than the marginal utility of income.
d.
z is inferior.
13. Symmetry of net substitution effects is one of the principal conclusions of the theory of utility maximization. Which
two mathematical theorems are used to prove this symmetry?
a.
Taylor's Theorem and Fundamental Theorem of Calculus
b.
Cauchy's Theorem and DeMoivre's Theorem
c.
Lagrangian Theorem and Fundamental Theorem of Calculus
d.
Envelope Theorem and Young's Theorem
Questions 14-17 use the following definitions for an individual who consumes only two goods, x and y:
sx = share of income spent on x.
sy = 1–sx.
= price elasticity of demand for x.
= price elasticity of demand for y.
ex, I = income elasticity of demand for x.
ey, I = income elasticity of demand for y.
= cross price elasticity of demand for x.
= cross price elasticity of demand for y.
14. Homogeneity of the demand function is shown by:
a.
.
b.
.
c.
.
d.
.
15. A generalization of Engel's Law is given by:
a.
.
b.
.
c.
.
d.
.
16. The elasticity of the compensated demand curve can be computed as:
a.
b.
c.
d.
17. If the demand for x is given by , which of parameter values hold?
a.
b.
c.
d.
None of these relations hold since the demand function is not homogeneous of degree zero in
18. For the Cobb-Douglas utility function with two goods, the sum of the own price elasticities of demand must be:
a.
0.
b.
-1.
c.
-2.
d.
any number between 0 and -4.
