# 16 the substitution effect of the price increase

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(Figure 5.16) The substitution effect of the price increase causes consumption of baseball hats to: decrease by 1. (True Answer )Correct decrease by 3. Incorrect decrease by 4. Incorrect increase by 1. Incorrect 260 Figure 5.16 Reference: Ref 5-16 (Figure 5.16) The income effect of the price increase causes consumption of baseball hats to: decrease by 1. Incorrect decrease by 3. (True Answer )Correct decrease by 4. Incorrect increase by 1. Incorrect 261 A consumer's bundle includes two normal goods, good X and good Y. According to the income effect, a(n) ______ in the price of good X or ______ in the price of good Y will cause the consumer to buy less of good X. increase; decrease Incorrect increase; increase (True Answer )Correct decrease; increase Incorrect decrease; decrease Incorrect 262 A consumer's bundle includes good X (an inferior good) and good Y (a normal good). According to the income effect, a(n) ______ in the price of good X or ______ in the price of good Y will cause the consumer to buy more of good X . increase; decrease Incorrect increase; increase (True Answer )Correct decrease; increase Incorrect decrease; decrease Incorrect 263 Figure 5.17 Reference: Ref 5-17 (Figure 5.17) Given the change in the budget constraint, which of the following statements is TRUE? The demand curve for good Y shifted inward. Incorrect The demand curve for good X shifted outward. (True Answer )Correct Good X is an inferior good. Incorrect Good X and good Y are complement goods. Incorrect 264 Figure 5.18 Reference: Ref 5-18 (Figure 5.18) Good X and good Y are: perfect complements. Incorrect Giffen goods. Incorrect Untitled Document Document.htm 81 of 93 10/24/2013 1:10 AM
(Figure 5.18) Good X and good Y are: perfect complements. Incorrect Giffen goods. Incorrect complement goods. Incorrect substitute goods. (True Answer )Correct 265 Figure 5.18 Reference: Ref 5-18 (Figure 5.18) Which of the following statements is TRUE? I. The demand curve for good Y shifted outward. II. The demand curve for good Y shifted inward. III. The demand curve for good X shifted inward. IV. The price of good Y decreased, causing an increase in the quantity demanded of good Y . II and III Incorrect I, III, and IV Incorrect III and IV (True Answer )Correct I and IV Incorrect 266 Suppose the price of good X , a Giffen good, increases. Which of the following statements is TRUE? I. The substitution effect of the price increase causes consumers to buy less of good X. II. The substitution effect of the price increases causes consumers to buy more of good X. III. The income effect of the price increase causes consumers to buy more of good X. IV. The income effect of the price increase causes consumers to buy less of good X. I and IV Incorrect II and IV Incorrect I and III (True Answer )Correct II and III Incorrect 267 Figure 5.19 Reference: Ref 5-19 (Figure 5.19) Which of the following statements is TRUE?