Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 5] ADVANCED TOPICS IN CONSUMER DEMAND THEORY 109
3. Which of the following is not an assumption of the theory of revealed preference? (a) A cardinal measure of utility;
(b) consistency; (c) transitivity; (d) a consumer can be induced to purchase any basket of commodities if its price is
made sufficiently attractive.
Ans. (a) See Section 5.2.
4. Which of the following statements is correct with regard to the theory of revealed preference? (a) It infers a consumer’s
preferences from that person’s market choices, (b) it can be used to derive a consumer’s indifference curve,
(c) it can be used to derive a consumer’s demand curve, or (d) all of the above.
Ans. (d) See Section 5.2.
5. The Laspeyres price index measures the cost of purchasing (a) period 1 quantities at period 1 prices relative to base
period prices, (b) base period quantities at period 1 prices relative to base period prices, (c) base period quantities at
base period prices, (d) period 1 quantities at period 1 prices.
Ans. (b) See Section 5.3.
6. Which of the following statements is correct with regard to price indices? (a) L is biased upward, (b) P is biased
downward, (c) L becomes available sooner than P, or(d) all of the above.
Ans. (d) See Section 5.3.
7. Traditional economic theory could not explain choices involving risk because it assumed that (a) MU always
declines, (b) MU first declines and then rises, (c) MU first rises and then declines, or (d) MU always increases.
Ans. (a) See Section 5.4.
8. If income is either $10 with p ¼ 0.2 or $20, the expected income is (a) $2, (b) $16, (c) $18, or (d) $20.
Ans. (c) See Example 4.
9. Which of the following is incorrect with respect to the new approach to consumer theory? (a) The characteristics of
a good and not the good itself give rise to utility, (b) a consumer’s equilibrium is shown in good or commodity
space, (c) a good usually possesses more than one characteristic, or (d) a given characteristic is usually possessed
by more than one good.
Ans. (b) See Example 5.
10. Which of the following represent(s) an advance of the new approach to consumer theory over traditional
consumer theory? (a) Substitute goods are explained in terms of possessing some common characteristics,
(b) the introduction of new goods can be considered, (c) quality changes can be considered, or (d) all
of the above.
Ans. (d) See Section 5.5.
11. Empirical demand curves refer to demand curves estimated from (a) utility theory, (b) the new approach to consumer
theory, (c) information provided by individual consumers, or (d) actual market price-quantities observations.
Ans. (d) See Section 5.6.
12. Which of the following is false with regard to the derivation of empirical demand curves? (a) Supply shifts
must be greater than demand shifts, (b) tastes must remain constant over the period of the analysis, (c) the
price of related commodities must remain constant, or (d) market and not individual demand curves are
derived.
Ans. (c) See Example 6.