1. preferences are complete.

2. preferences are transitive.

3. consumers prefer more of a good to less.

4. None of the above.

5. 20

20. Use the following statements to answer this question.

I. A price-consumption curve is derived by varying the price of asparagus. If the price-consumption curve is an upward sloping straight line, the demand curve for asparagus must be downward sloping.

II. Fred consumes only food and clothing. Fred's Engel curve traces out the utility maximizing combinations of food and clothing associated with each and every income level.

1. I and II are true.

2. I is true, and II is false.

3. I is false, and II is true.

4. I and II are false.

21. The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the ______________ effect.

1. Giffen

2. real price

3. income

4. Substitution

22. For an inferior good, the income and substitution effects

1. work together.

2. Work against each other.

3. can work together or in opposition to each other depending upon their relative magnitudes.

4. always exactly cancel each other.

23. Assume that bread is a normal good. If the price of taxi rises, then the substitution effect results in the person buying ______ of the good and the income effect results in the person buying ______ of the good.

1. more, more

2. more, less

3. less, more

4. less, less

24. Assume that bread is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ______ of the good and the income effect results in the person buying ______ of the good.

1. More, more

2. more, less

3. Less, more

4. less, less

25. Which of the following is true regarding utility along a price consumption curve?

1. It is constant.

2. It changes from point to point.

3. It changes only if income changes.

4. It changes only for normal goods.

26. If an Engel curve has a positive slope

1. both goods are normal.

2. the good on the horizontal axis is normal

3. as the price of the good on the horizontal axis increases, more of both goods in consumed.

4. as the price of the good on the vertical axis increases, more of the good on the horizontal axis is consumed.

27. As more and more firms have acquired fax machines, the fax machine has become a standard means of business communication. The increase in demand for fax machines for business communication:

1. is an example of the snob effect.

2. proves that the fax machine is a normal good.

3. is an example of the bandwagon effect.

4. is an example of a positive network externality.

5. is an example of a negative network externality.

28. When negative network externalities are present

1. the demand curve is more elastic than otherwise.

2. the demand curve is less elastic than otherwise.

3. the demand curve shifts to the right.

4. the demand curve shifts to the left.

29. The bandwagon effect corresponds best to which of the following?

1. snob effect.

2. external economy.

3. negative network externality.

4. positive network externality.

30. Which of these is an example of a negative network externality?

1. bandwagon effect.

2. pollution.

3. snob effect.

1. two-part tariff.

31. Which of the following is true at each point along a price consumption curve?

1. Utility is maximized but income is not all spent.

2. All income is spent, but utility is not maximized.

3. Utility is maximized, and all income is spent.

4. The level of utility is constant.

32. If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not satisfied?