A decrease in income will shift the demand curve for an inferior good to the right

  • The cost of production is a major determinant of consumer demand.

      a. True
      b. False
  • Managerial economics is primarily concerned with the market demand for an individual firm's output.

      a. True
      b. False
  • The quantity of a commodity demanded by a consumer is influenced by the price of the commodity.

      a. True
      b. False
  • The demand for an individual firm's output depends on the demand for the industry's output, the number of firms in the industry, and the structure of the industry.

      a. True
      b. False
  • The quantity of a commodity demanded by a consumer is influenced by the number of consumers in the market.

      a. True
      b. False
  • The quantity of a commodity demanded by a consumer is influenced by the prices of related commodities.

      a. True
      b. False
  • The law of demand refers to the relationship between consumer income and the quantity of a commodity demanded per time period.

      a. True
      b. False
  • An increase in price of a commodity will generally lead to a decrease in the quantity of the commodity demanded per time period.

      a. True
      b. False
  • A commodity is referred to as normal if an increase in its price leads to an increase in the quantity of the commodity demanded per time period.

      a. True
      b. False
  • Most goods are normal.

      a. True
      b. False
  • Inferior goods are generally purchased at low levels of income but not at high levels of income.

      a. True
      b. False
  • If an increase in the price of one commodity leads to an increase in demand for a second commodity, then the two commodities are complements.

      a. True
      b. False
  • An individual's demand curve is formulated under the assumption that price is held constant and all other determinants of demand are allowed to vary.

      a. True
      b. False
  • The substitution effect holds that an increase in the price of a commodity will cause an individual to search for substitutes.

      a. True
      b. False
  • The income effect holds that a decrease in the price of a commodity is, in some respects, the same as an increase in income.

      a. True
      b. False
  • A change in the price of a commodity will cause the demand curve for that commodity to shift.

      a. True
      b. False
  • If a decrease in income causes an individual's demand curve for a good to shift to the left, then the good is inferior.

      a. True
      b. False
  • If a good is normal, then both the substitution effect and the income effect cause quantity demanded to change in the same direction.

      a. True
      b. False
  • There is an inverse relationship between the quantity demanded of a commodity and its price.

      a. True
      b. False
  • Butter and bread are substitutes.

      a. True
      b. False
  • A shift in demand is referred to as a change in quantity demanded.

      a. True
      b. False
  • If the independent individual consumer demand curves for a commodity are horizontally summed, the result is the market demand curve for the commodity.

      a. True
      b. False
  • If the consumption decisions of individual consumers are not independent, then the horizontal sum of individual consumer demand curves is the market demand curve for the commodity.

      a. True
      b. False
  • The bandwagon effect refers to the importance of musical backgrounds in TV advertising.

      a. True
      b. False
  • The bandwagon effect tends to make the market demand curve flatter than the horizontal summation of individual demand curves.

      a. True
      b. False
  • The snob effect tends to make the market demand curve flatter than the horizontal summation of individual demand curves.

      a. True
      b. False
  • Monopoly refers to a situation in which there is only one producer of a commodity for which there are many close substitutes.

      a. True
      b. False
  • If the demand for a firm's output is horizontal, then the firm is a perfect competitor.

      a. True
      b. False
  • Oligopoly refers to a type of market organization that is characterized by large number of firms selling a differentiated commodity.

      a. True
      b. False
  • Monopolistic competition is a form of market organization that combines elements of perfect competition and monopoly.

      a. True
      b. False
  • Under every form of market organization except monopolistic competition, the firm faces a downward-sloping demand curve.

      a. True
      b. False
  • If consumers expect the price of a commodity to increase in the future, then demand for the commodity will decrease.

      a. True
      b. False
  • Consumers find it easier to postpone the purchase of a durable good than to postpone the purchase of a nondurable good, so the demand for durable goods is more unstable than the demand for nondurable goods.

      a. True
      b. False
  • Derived demand refers to the mathematical derivation of a market demand curve from individual consumers' demand curves.

      a. True
      b. False
  • Derived demand by a firm will generally increase if the demand for the firm's output increases.

      a. True
      b. False
  • According to the estimated linear demand function presented in Case 3-1, sweet potatoes are normal goods.

      a. True
      b. False
  • Elasticity is a measure that does not depend on the units used to measure prices and quantities.

      a. True
      b. False
  • The price elasticity of demand is the same as the slope of a demand curve.

      a. True
      b. False
  • The arc price elasticity of demand measures the price elasticity at a point on the demand curve.

      a. True
      b. False
  • The price elasticity of demand for a firm's output is generally more elastic than the price elasticity of demand for the industry's output of the commodity.

      a. True
      b. False
  • If price elasticity of demand for a firm's output becomes more elastic, then the firm's marginal revenue will increase.

      a. True
      b. False
  • If a firm increases the price of its product and total revenue increases, then the price elasticity of demand must be less than minus one.

      a. True
      b. False
  • If the price elasticity of demand for a firm's output is inelastic, then a decrease in price will reduce the firm's total revenue.

      a. True
      b. False
  • If the price elasticity of demand for a firm's output is unit elastic, then marginal revenue is equal to zero and total revenue is at a maximum.

      a. True
      b. False
  • If a firm is a perfect competitor, then its marginal revenue is equal to the price of its commodity.

      a. True
      b. False
  • If a firm is not a perfect competitor, then its marginal revenue is greater than the price of its commodity.

      a. True
      b. False
  • An increase in the number of available substitutes for a commodity will decrease the price elasticity of demand for the commodity.

      a. True
      b. False
  • The long-run price elasticity of demand for a commodity is generally greater then the short-run price elasticity of demand for the commodity.

      a. True
      b. False
  • The income elasticity of demand for an inferior good is negative.

      a. True
      b. False
  • For most goods, the income elasticity of demand is negative.

      a. True
      b. False
  • The cross-price elasticity of demand for two goods is negative if the goods are substitutes.

      a. True
      b. False
  • The cross-price elasticity of demand measures the percentage change in the demand for one good that results from a one percent change in the quantity demanded of a second good.

      a. True
      b. False
  • If two goods are very close complements, then the cross-price elasticity of demand between the two goods will be large and negative.

      a. True
      b. False
  • It is likely that the cross-price elasticity of demand between two goods produced by different firms in the same industry will be positive and large.

      a. True
      b. False
  • Estimates of demand elasticities are used by firms to determine optimal operational policies.

      a. True
      b. False
  • If the price elasticity of demand for a firm's output is inelastic, then the firm could increase its revenue by reducing price.

      a. True
      b. False
  • Decreased barriers to international trade have increased the differences in consumer preferences between countries.

      a. True
      b. False
  • The international convergence in tastes has progressed to the point where there are virtually no international differences in consumer preferences.

      a. True
      b. False
  • Improved telecommunication technology has contributed to the globalization of markets.

      a. True
      b. False
  • Middle-class life styles are fundamentally different in different countries.

      a. True
      b. False
  • Electronic commerce currently accounts for no more than 10% of total U.S. retail sales.

      a. True
      b. False
  • About 90% of the total world revenue accounted for by electronic commerce in 1999 involved business-to-business transactions.

      a. True
      b. False
  • The growth of electronic commerce has been limited by the fact that it increases the costs to retailers of executing sales.

      a. True
      b. False
  • Retail firms that have developed electronic commerce distribution channels typically have not maintained their traditional retail outlets.

      a. True
      b. False
  • The ability of consumers to do comparison shopping on the Internet is likely to put pressure on profit margins at the retail level.

      a. True
      b. False
  • Will a decrease in income shift the demand curve for an inferior good to the right?

    It shifts inward when a consumer's income decreases. An inferior good is one whose consumption decreases when income increases and rises when income falls. The demand curve for an inferior good shifts out when income decreases and shifts in when income increases.

    What causes the demand curve for an inferior good to shift to the right?

    Demand Curve Shifted Right. With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.

    What happens to demand for an inferior good when income decreases?

    Conversely, the demand for inferior goods increases when incomes fall or the economy contracts. When this happens, inferior goods become a more affordable substitute for more expensive goods.

    What would shift the demand curve to the right or to the left?

    To sum up, if the income level of a population increases, the demand curve will shift to the right, since there is more quantity of demand at every price point. The opposite will happen if the income level drops. Now there will be less money to spend, and the demand curve will shift to the left.