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Econ 113 Practice Final Multiple Choice Questions Use the following question 1: to answer Figure 5.1 Fishing charters 4 4- 2 1- ac- BC 12345 678910 Parachute jumps 1. (Figure 5.1) Francis spends his income on fishing charters and jumping out of airplanes. Which of the following statements is TRUE? Fishing charters are an inferior good. A B) An increase in income could cause the optimal consumption bundle to move from point A to point B C) Parachute jumps are an inferior good. D An increase in the price of parachute jumps could cause the optimal consumption bundle to move from point A to point B ) 2. Ryan's Engel curve for potato chips is I= 300C, where / is weekly income and C measures the number of bags of potato chips. Ryan considers potato chips a(n): inferior good A normal good. inferior good at income levels above $60,000. inferior good at income levels above $30,000. B) C) Use the following to answer question 3: Figure 5.6 Page I Hui H. Coffee (cups) 12- 11- 10- 8 7- 6- 5- 4- 3- U 2- 1- 1 2 34 5 678910 Ice cream (gallons) 3. (Figure 5.6) Garth spends his income on ice cream and coffee, and coffee sells for $1 cup. If ice cream sells for $1.50 per gallon, Garth will purchase: A 2 gallons. B) 8 gallons. C) 1 gallon. D 6 gallons. Y Use the following to answer question 4: Figure 5.8 Prune juice (quarts) 15- 14- 13- 12- I1- 10- 9- 8- 7- 6- 5- 3- 2- 1- 2 3456 789 10 11 12 13 14 15 Apple juice (qearts) Page 2 Hui H. Page 12 Hui H. (Figure 5.8) Refer to Figure 5.8, depicting the consumer's indifference curves and budget constraints. Suppose the consumer has $20 of income to spend on apple and prune juice. Which of the following statement(s) is (are) TRUE? I. 4. At $2 per quart, the consumer buys 3 quarts of apple juice II. At $4 per quart, the consumer buys 3 quarts of apple juice. III. At $1.33 per quart, the consumer buys 6 quarts of apple juice At $0.75 per quart, the consumer buys 6 quarts of apple juice. IV. I and II A B) II and III C) II and IV DI ) in a good's price will in consumption of 5. The income effect of a price change predicts that a consumer purchasing power, leading to a(n) fall; increase; increase; normal ) fall; decrease; decrease; normal goods A B) C) rise; increase; increase; inferior rise; increase; decrease; inferior )

Answer 1

ans 1

a)false.

An ‘inferior good’ is an economic terminology which describes a product whose demand falls when people's level of incomes increases. This happens when a product has more costly substitutes which see a rise in demand as level of income and the overall economy improve.

Inferior goods (are the opposite of normal goods) are anything a customer would demand less of if he had a higher level of actual income. These may also be linked with those who usually fall into a lower socio-economic category.

b)true.

Budget line shifts outwards parallel to the initial line (B1). Francis can now afford the new bundle B on U1

c) false

An ‘inferior good’ is an economic terminology which describes a product whose demand falls when people's level of incomes increases. This happens when a product has more costly substitutes which see a rise in demand as level of income and the overall economy improve.

Inferior goods (are the opposite of normal goods) are anything a customer would demand less of if he had a higher level of actual income. These may also be linked with those who usually fall into a lower socio-economic category.

d)false.

If the price level of one good (parachute jumps) rises, the budget line will shift inward, pivoting from the other product’s intercept. Francis will operate on a lower indifference curve.