Download Practice Quiz 6

Chapter 6: Practice Quiz
Demand Relationships Among Goods
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 Hicksian (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 U ( x, y ) = xy , 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  x i /  p j , the income effect is given by
a.
b.
c.
d.
6.
xi  xi /  I .
x j  xi /  I .
xi  x j /  I .
x j  x j / I .
The primary additional insight provided by expanding the theory of choice 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.
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7.
“Hicks’ Second 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.
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.
Question 11 uses the following definitions for an individual who consumes only two
goods:
sx = share of income spent on x.
sy = 1 – sx .
e x , p x = price elasticity of demand for x.
e y , p y = price elasticity of demand for y.
ex, I = income elasticity of demand for x.
ey, I = income elasticity of demand for y.
e x , p y = cross price elasticity of demand for x.
e y , p x = cross price elasticity of demand for y.
11.
0.7
If the demand for x is given by x  kpx1.2 p0.5
, which of parameter values hold?
y I
a.
b.
c.
d.
e x , px  1.2 e x , I  .7 e y , p x  .5 .
e x , p x   1.2 e x , p y  .5 e x , I  .7 .
ex, px  1.2 e y , p y  .7 e x , I  .5 .
None of these relations hold since the demand function is not homogeneous of
degree zero in p x , p y , and I .
Chapter 9/Profit Maximization 
12.
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.
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