Question

5. Suppose you have drawn a consumer's budget line for food and clothing, with food on the x- axis. Which of the following events would make the budget line steeper? a) Income increases. b) Price of food increases. c) Price of clothing increases. d) None of the above. 6. A downward sloping price-consumption curve indicates that a) The two goods are complements. b) The two goods are substitutes. c) The two goods are independent of each other. d) The two goods are inferior goods. 7. Which of the following statements are true for inferior goods? i. The income elasticity of demand is positive. ii. The income-consumption curve is upward sloping iii. Consumption falls as income rises. a) i only. b) ii only. c) i and ii only. d) iii only. 8. Microsoft Office is an example of positive network externality. When the price of Microsoft Office goes down, the quantity demanded a) increases by less than if Microsoft Office without the positive network externality. b) increases by more than if Microsoft Office without the positive network externality. c) increases by the same amount if Microsoft Office without the positive network externality. d) decreases by less than if Microsoft Office without the positive network externality. 9. Suppose Jane's demand for a good is given by Qp = a -6P. Jane consumes 120 units when the price is $20. Suppose the price of the good increases by 5 percent to $21. The consumer surplus a) increases by $117. b) decreases by $117. c) increases by $114. d) decreases by $114. 10. Which of the following is not a strategy to reduce risk? a) diversification b) insurance c) loss aversion d) paying to acquire complete information

Answer 1

5. From the given information, it is clear that the budget line will be steeper when the price of food increases, because the consumption of food will decrease as price of food increases with food on the x-axis Thus, the optionb is correct. 6 For substitute goods, the price consumption curve slopes downward, because as price of good x falls, the consumer will demand larger quantity of good X, and less of good Y. Thus, the option b is correct 7 For inferior goods, the income elasticity of demand is negative and income consumption curve slopes downward, because as income increases, the consumption of inferior goods will decrease. Thus, the option d is correct. (Consumption falls as income rises) 8 Positive externality is the benefit to the third party which is occurred due to the production or consumption

From the given infomation, it is clear that when the price of Microsoft office goes down the quantity demanded increases more than if Microsoft office without the positive network externality Thus, the option b is correct.