Question

1. The substitution effect of a price increase:

A. the consumer to purchase less of the good that is now relatively more expensive.

B. causes the consumer to purchase more of the good whose price has risen.

C. can cause the consumer to purchase either more or less of the good.

D. has no effect on the amount purchased of either good.

2. Income Effect refers to

A.change in consumption choices resulting from a change in relative prices

B.change in consumption choices resulting from a change in purchasing power

C. change in consumer's preference

D. an change in happiness when you get a raise

3. What is (are) the condition(s) of the theoretical budget constraint that we need to draw to find the substitution effect?

A.parallel to the new budget constraint

B.but tangent to the old indifference curve

C.parallel to the new budget constraint, but tangent to the old indifference curve

D. parallel to the new budget constraint, tangent to the old indifference curve, and below the new indifference curve

4. The market quantity demanded at each price is

A.the difference of the individual quantities demanded at each price

B.the highest individual quantities demanded

C.the lowest individual quantities demanded

D. the sum of the individual quantities demanded at each price

5. What do we call the observed change in consumption of a good after a price change?

A.The income effect

B.The price effect

C.The total effect

D.The substritution effect

Please type it out

Answer 1

1. Ans: The consumer to purchase less of the good that is now relatively more expensive.

Explanation:

When price of a good increases, consumers switch to the substitute goods whose price is relativele less.

Thus, option [A] is correct answer.

2. Ans: Change in consumption choices resulting from a change in purchasing power.

Explanation:

When income of consumers changes, purchasing power changes. When income increases, purchasing power increases and vice-versa. Thus, income effect refers to the change in consumption choices resulting from a change in purchasing power.

Thus, option [B] is correct answer.

3. Ans: parallel to the new budget constraint, tangent to the old indifference curve, and below the new indifference curve.

4. Ans: The sum of the individual quantities demanded at each price

Explanation:

As we know, market demand is the summation of all individual demands.

Thus, option [D] is correct answer.

5. Ans: The price effect

Explanation:

The observed change in consumption of a good after a price change is called the price effect.

Thus, option [B] is correct answer.