Answers to Week 3 Practice Questions

Multiple Choice

1) a
2) b
3) b
4) b
5) c
6) c
7) a
8) a
9) c
10) a

Challenge Questions

1) You should invest in the company selling surfboards. Surfboards are a
normal good and as income rises demand will increase. 

2) If the supply of labor is elastic, people will work more hours as tax
rates are reduced, thus increasing the tax base and possibly increasing
tax revenues.

3) The budget constraint will intersect the gum axis at 10 and the candy
axis at 6. The area to the right of the budget constraint is the
consumer's choice set. If the price of gum increases to $.50, the budget
constraint will now intersect the gum axis at 6.