Module M15 Quiz: Comparative Statics and Demand Theory

25 questions · Intermediate · Multiple choice, calculation, and short answer

How to use

Attempt each question before clicking Show Answer.

Question 1

Lesson L01 · Welfare

The Slutsky equation is:

Type: Multiple Choice

A) ∂x1/∂p1 = ∂x1^h/∂p1 - x1(∂x1/∂m)
B) ∂x1/∂p1 = ∂x1/∂m - x1^h(∂x1^h/∂p1)
C) ∂x1/∂p1 = ∂x1^h/∂p1 + x1(∂x1/∂m)
D) ∂x1/∂p1 = ∂x1/∂m + x1^h(∂x1^h/∂p1)

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Answer: A) ∂x1/∂p1 = ∂x1^h/∂p1 - x1(∂x1/∂m)

Slutsky: Total effect = Substitution effect (Hicksian) + Income effect

Question 2

Lesson L01 · ∂X1/∂P1 = 2 50.1 = 2.5*

For a normal good with ∂x1^h/∂p1=-2, x1=5, ∂x1/∂m=0.1, find ∂x1/∂p1

Type: Calculation

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Answer:

-2.5

Question 3

Lesson L01 · Because Consumers Substitute Away From Goods That Become Relatively More Expensive

Why is the substitution effect always negative?

Type: Short Answer

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Answer:

Question 4

Lesson L01 · Welfare

For a Giffen good, what must be true?

Type: Multiple Choice

A) IE > SE in opposite direction
B) SE > IE in same direction
C) IE = SE
D) SE is positive

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Answer: A) IE > SE in opposite direction

Income effect must oppose and dominate substitution effect

Question 5

Lesson L01 · Welfare

Which demand holds utility constant?

Type: Multiple Choice

A) Marshallian
B) Hicksian
C) Slutsky
D) Engel

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Answer: B) Hicksian

Hicksian (compensated) demand fixes utility

Question 6

Lesson L02 · Welfare

Shephard's Lemma states:

Type: Multiple Choice

A) ∂e(p,u)/∂pi = xi^h(p,u)
B) ∂e(p,u)/∂u = λ
C) ∂x/∂p = ∂x^h/∂p - x(∂x/∂m)
D) ∂x^h/∂p = ∂x/∂p + x(∂x/∂m)

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Answer: A) ∂e(p,u)/∂pi = xi^h(p,u)

Shephard's Lemma: expenditure derivative = Hicksian demand

Question 7

Lesson L02 · H1=∂E/∂P1=2U(0.5√(P2/P1))=U√(P2/P1)*

Given e(p1,p2,u)=2u√(p1p2), find h1(p,u)

Type: Calculation

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Answer:

u√(p2/p1)

Question 8

Lesson L02 · Hicksian Holds Utility Constant; Marshallian Holds Income Constant

What's the key difference between Hicksian and Marshallian demand?

Type: Short Answer

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Answer:

Question 9

Lesson L02 · Welfare

For U=x1x2, what's the expenditure function?

Type: Multiple Choice

A) e=u√(p1p2)
B) e=2u√(p1p2)
C) e=up1p2
D) e=u(p1+p2)

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Answer: B) e=2u√(p1p2)

For Cobb-Douglas, e=u/(a^a b^b) p1^a p2^b where a=b=0.5

Question 10

Lesson L02 · Welfare

Which demand is observable in markets?

Type: Multiple Choice

A) Hicksian
B) Marshallian
C) Both
D) Neither

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Answer: B) Marshallian

Marshallian (ordinary) demand is observable

Question 11

Lesson L03 · Welfare

The income-consumption curve shows:

Type: Multiple Choice

A) x1 vs p1
B) x1 vs m
C) x1 vs x2 as m changes
D) x1 vs utility

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Answer: C) x1 vs x2 as m changes

ICC traces optimal bundles as income changes

Question 12

Lesson L03 · From Demand Function: X1=Am/P1 Where A=0.4

For U=x1^0.4x2^0.6, derive the Engel curve for x1

Type: Calculation

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Answer:

x1=0.4m/p1

Question 13

Lesson L03 · As Income Rises, The Proportion Spent On Food Falls

What does Engel's Law state?

Type: Short Answer

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Answer:

Question 14

Lesson L03 · Welfare

Which good has income elasticity >1?

Type: Multiple Choice

A) Necessity
B) Inferior
C) Luxury
D) Giffen

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Answer: C) Luxury

Luxuries have income elasticity exceeding 1

Question 15

Lesson L03 · Welfare

For U=x1+x2^0.5, what happens to x2 as m increases?

Type: Multiple Choice

A) Increases
B) Decreases
C) Stays same
D) Depends on prices

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Answer: A) Increases

x2 is normal (∂x2/∂m > 0)

Question 16

Lesson L04 · Welfare

The price-consumption curve shows:

Type: Multiple Choice

A) x1 vs p1
B) x1 vs x2 as p1 changes
C) x1 vs m
D) x1 vs utility

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Answer: B) x1 vs x2 as p1 changes

PCC traces optimal bundles as one price changes

Question 17

Lesson L04 · Perfect Complements Have Horizontal Pcc (Fixed Ratio)

For U=min{x1,2x2}, find the PCC slope

Type: Calculation

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Answer:

0

Question 18

Lesson L04 · They Are Gross Complements (As P1 Falls, X2 Also Falls)

What does a downward-sloping PCC imply about the goods?

Type: Short Answer

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Answer:

Question 19

Lesson L04 · Welfare

For U=x1x2, the PCC is:

Type: Multiple Choice

A) Upward-sloping
B) Downward-sloping
C) Horizontal
D) Vertical

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Answer: C) Horizontal

Cobb-Douglas has horizontal PCC (goods are neither gross substitutes nor complements)

Question 20

Lesson L04 · Welfare

Which property implies demand is homogeneous of degree zero?

Type: Multiple Choice

A) No money illusion
B) Transitivity
C) Monotonicity
D) Convexity

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Answer: A) No money illusion

No money illusion means only relative prices matter

Question 21

Lesson L05 · Welfare

CV measures:

Type: Multiple Choice

A) Income change at new prices to restore original utility
B) Income change at old prices equivalent to the price change
C) Area under demand curve
D) Change in consumer surplus

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Answer: A) Income change at new prices to restore original utility

CV uses original utility as reference

Question 22

Lesson L05 · Cv=E(1,1,100) E(2,1,100)=200 200√2≈ 82.84

For e(p,u)=2u√(p1p2), p1=1→2, p2=1, u=100, find CV

Type: Calculation

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Answer:

100(√2-1)

Question 23

Lesson L05 · Because It Evaluates All Policies At Original Prices For Consistent Comparison

Why is EV preferred for comparing multiple policies?

Type: Short Answer

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Answer:

Question 24

Lesson L05 · Welfare

For normal goods, which is largest when price falls?

Type: Multiple Choice

A) CV
B) ΔCS
C) EV
D) IE

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Answer: C) EV

EV ≥ ΔCS ≥ CV for normal goods with price fall

Question 25

Lesson L05 · Welfare

Which welfare measure uses the Hicksian demand curve?

Type: Multiple Choice

A) CV and EV
B) ΔCS only
C) CV only
D) EV only

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Answer: A) CV and EV

Both CV and EV are based on Hicksian demand