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ECO479Spring2011HW1-1

# ECO479Spring2011HW1-1 - ECO 479 Spring 2011 Professor...

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1 ECO 479 Spring 2011 Professor Yelowitz Homework 1 Distributed: Tuesday February 1, 2011; Due Thursday, Feb. 10, 2011, in class Worth 3 points overall; covers chapters 1, 2, 3 of Gruber 1. Suppose that you buy a lot of music and that prices of CDs go down. The substitution effect means that you buy _____ CDs because _____. A) more; your nominal income has been increased B) more; your real income has been increased C) more; you now enjoy music more D) fewer; CDs are more abundant E) None of the above. 2. Suppose that a 50% increase in price causes a 66% reduction in the quantity demanded. The elasticity of demand, when rounded to two decimal places, is: 3. Suppose that because the government increases the minimum wage, employees who were earning the minimum wage have their hours reduced. This is an example of: 4. If pasta is an inferior good and the price of pasta decreases, the income effect _____ the quantity demanded and the substitution effect ____ the quantity demanded.

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ECO479Spring2011HW1-1 - ECO 479 Spring 2011 Professor...

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