True or false

Question 1

If there are two goods with positive prices and the price of one good is reduced, while income and other prices remain constant, then the size of the budget set is reduced.

Answer 1

False

Question 2

With quasilinear preferences, the slope of indifference curves is constant along all rays through the origin.

Answer 2

False

Question 3

An Engel curve is a demand curve with the vertical and horizontal axes reversed.

Answer 3

False

Question 4

If all goods, including leisure, are normal goods, then an increase in the wage rate will necessarily make people want to work more hours.

Answer 4

False

Question 5

Producer’s surplus at price p is the vertical distance between the supply curve and the demand curve at price p.

Answer 5

False

Question 6

If a consumer has to pay his reservation price for a good, then he gets no consumer surplus from purchasing it.

Answer 6

True

Question 7

The marginal cost curve passes through the minimum point of the average fixed cost curve.

Answer 7

False!

Den passerar lägsta punkt på ATC.

Question 8

A monopsony occurs when two previously competing firms reach an agreement to collude on price.

Answer 8

False

Question 9

If the initial endowment is ON the contract curve, then there must always be a competitive equilibrium in which no trade takes place.

Answer 9

True

Question 10

An allocation is fair if whenever one person envies another, the envied person does not envy the envier.

Answer 10

False

Question 11

Henrietta’s utility function is U(x1, x2) = x1x2. She has diminishing marginal rate of substitution between goods 1 and 2.

Answer 11

True

Question 12

If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

Answer 12

True

Question 13

An increase in the price of an inferior good makes the people who consume that good better off.

Answer 13

False

Question 14

If leisure is a normal good, then an increase in non-labour income will reduce labor supply.

Answer 14

True

Question 15

Consumer’s surplus is another name for excess demand

Answer 15

False

Question 16

If the supply curve is vertical, then the amount supplied is independent of price.

Answer 16

True

Question 17

The area under the marginal cost curve measures total variable costs.

Answer 17

True

Question 18

The short-run industry supply curve can be found by horizontally summing the short-run supply curves of all the individual firms in the industry.

Answer 18

True

Question 19

An allocation that is worse for somebody than the initial allocation cannot be Pareto optimal.

Answer 19

False

Question 20

A trade between two people is an example of an externality.

Answer 20

False

Question 21

if preferences are transitive, more is always preferred to less.

Answer 21

False

Question 22

Sharon spends all of her income on peaches and strawberries. Peaches are a normal good for her. Her income increased by 20 percent and prices did not change. Her consumption of strawberries could not have increased by more than 20 percent.

Answer 22

True

Question 23

A Giffen good must be an inferior good.

Answer 23

True

Question 24

If a person has no non-labor income, a decrease in wages causes the budget line between leisure and other goods to shift downward in a parallel fashion.

Answer 24

False

Question 25

The production set of a firm is the set of all products the firm can produce.

Answer 25

False

Question 26

The average variable cost curve must always be U-shaped.

Answer 26

False

Question 27

Mr. O. Carr has the cost function c(y) = y2+64 if his output, y, is positive and c(0) = 0. If the price of output is 12, Mr. Carr’s profit-maximizing output is zero

Answer 27

False

Question 28

In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm’s rival will continue to sell at the same price as before.

Answer 28

False

Question 29

Every allocation on the contract curve is Pareto optimal

Answer 29

True

Question 30

According to Arrow’s impossibility theorem, it is impossible to find a social ordering that is complete, reflexive, and transitive.

Answer 30

False

Question 31

If there is Cobb-Douglas utility, compensating and equivalent variation are the same.

Answer 31

False

Question 32

Marginal revenue is equal to price if the demand curve is horizontal.

Answer 32

True

Question 33

For a monopsonist, the supply curve of a factor of production is less steep than the marginal cost curve.

Answer 33

True

Question 34

A life insurance company must be concerned about the possibility that the people who buy life insurance may tend to be less healthy than those who do not. This is an example of adverse selection.

Answer 34

True

Question 35

If someone has a utility function U = 2min{x, y}, then x and y are perfect complements for that person.

Answer 35

True

Question 36

In economic theory, the demand for a good must depend only on income and its own price and not on the prices of other goods.

Answer 36

False

Question 37

If a consumer is initially endowed with a positive amount of two goods and sells some of one to get more of the other and if she has no other sources of income, then her budget line will pass through her endowment point.

Answer 37

True

Question 38

There is a positive consumer’s surplus when the total amount the consumer pays for something is less than the amount she would be willing to pay rather than do without it altogether

Answer 38

True

Question 39

an economic situation is Pareto optimal only if there is no way to make someone better off

Answer 39

False

Question 40

Average fixed costs never increase with output

Answer 40

True

Question 41

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium.

Answer 41

True

Question 42

an allocation that is worse for somebody than the initial allocation cannot be Pareto optimal.

Answer 42

false

Question 43

The only known way to eliminate externalities is through taxes or subsidies.

Answer 43

false