Question 1

If income increases, the budget line
A)becomes steeper.
B)becomes flatter.
C)shifts leftward and parallel to the original budget line.
D)shifts rightward and parallel to the original budget line.
E)shifts parallels either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Accepted Answer

When income increases, the consumer can afford to buy more of both goods, so the budget line shifts rightward and parallel to the original budget line. This is assuming that both goods are normal goods, meaning that demand for the goods increases as income increases. If one or both goods were inferior goods, the budget line may shift leftward instead.

Question 2

Use the figure below to answer the following questions.
  
Figure 9.1.1
-Shelly's budget line is shown in Figure 9.1.1. Which points are affordable given her income and current prices?
A)A only
B)B only
C)C only
D)D only
E)A, C, and D

Accepted Answer

The affordable points are those that lie on or below the budget line. This includes points A, C, and D. The best choice depends on Shelly's preferences and the utility she derives from each point. Without additional information, we cannot determine the best choice.

Question 3

If income decreases, the budget line
A)becomes steeper.
B)becomes flatter.
C)shifts leftward and parallel to the original budget line.
D)shifts rightward and parallel to the original budget line.
E)shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Accepted Answer

When income decreases, the maximum amount that a consumer can spend also decreases. This means that the budget line shifts leftward and becomes parallel to the original budget line since the prices of goods and the consumer's preferences do not change.

Question 4

Real income in terms of a good is defined as
A)income divided by the quantity consumed of a good.
B)the income of a producer of that good.
C)the price of one good divided by the price of another good.
D)dollar income.
E)income divided by the price of a good.

Accepted Answer

Real income in terms of a good is defined as income divided by the price of a good, as it reflects the purchasing power of income with respect to that specific good. Dividing income by the quantity consumed of a good (A) would give the price per unit, but does not take into account changes in the price level over time. The income of a producer of that good (B), the price of one good divided by the price of another good (C), and dollar income (D) do not reflect the specific purchasing power of income with respect to a specific good.

Question 5

Marie-Louise has an income of $10 to buy peanuts and popcorn. The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2. What is Marie-Louise's real income in terms of popcorn?
A)1/2 bag of popcorn
B)1 bag of popcorn
C)2 bags of popcorn
D)5 bags of popcorn
E)10 bags of popcorn

Accepted Answer

Marie-Louise's real income in terms of popcorn is calculated by dividing her total income by the price of a bag of popcorn: $10 / $2 = 5 bags of popcorn.

Question 6

Let Y = $100, QX = quantity of good X, and QW = quantity of good W, PX = $4 and PW = $5. The budget equation is
A)100 = 4QX + 5QW.
B)100 = QX + (4/5)QW.
C)QX = 100 + (4/5)QW.
D)QX = QW + (4/5)Y.
E)QW = QX + (4/5)Y.

Accepted Answer

The budget equation is the total amount of money (Y) that can be spent on the two goods (PXQX and PWQW), so it is:
Y = PXQX + PWQW
Substituting the given values for Y, PX, and PW, we get:
100 = 4QX + 5QW
Therefore, the correct answer is A.

Question 7

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is David's real income?
A)$30
B)5 movie tickets or 15 bus tickets
C)15 movie tickets or 5 bus tickets
D)$38
E)$32

Accepted Answer

David's real income in terms of goods is the maximum number of movie tickets or bus tickets he can buy with his $60. He can buy 5 movie tickets ($60/$12) or 15 bus tickets ($60/$4).

Question 8

Guy has an income (Y)of $50 with which he can purchase DVDs (D)at $10 each and haircuts (H)at $20 each. Which one of the following represents Guy's budget line?
A)Y = 10QD - 20QH
B)50 = QD + QH
C)Y = 50 + QD + QH
D)20Y = QD + 10QH
E)50 = 10QD + 20QH

Accepted Answer

The budget line shows the combinations of DVDs and haircuts that Guy can purchase with his income of $50. Let QD be the quantity of DVDs and QH be the quantity of haircuts. Guy can purchase a maximum of 5 DVDs (5 x $10 = $50) with his entire income or a maximum of 2.5 haircuts (2.5 x $20 = $50) with his entire income. The equation for the budget line is Y = 10QD + 20QH, which simplifies to 50 = 10QD + 20QH. This represents all the possible combinations of DVDs and haircuts that can be purchased at the given prices, and any point on or inside the line is affordable for Guy. Therefore, the best choice is E.

Question 9

If the price of the good measured on the vertical axis increases, the budget line
A)becomes steeper.
B)becomes flatter.
C)shifts leftward and parallel to the original budget line.
D)shifts rightward and parallel to the original budget line.
E)shifts leftward and becomes steeper.

Accepted Answer

The answer of If the price of the good measured...

Question 10

The price of one good divided by the price of another good is
A)an absolute price.
B)a relative price.
C)a marginal price.
D)a demand price.
E)a money price.

Accepted Answer

The price of one good divided by the price of another good is a comparison between the two prices, making it a relative price. It reflects the opportunity cost of choosing one good over the other.

Question 11

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is the relative price of a bus ticket in terms of movie tickets?
A)2 movie tickets
B)15 movie tickets
C)$3
D)1/3 movie ticket
E)$6

Accepted Answer

To find the relative price of a bus ticket in terms of movie tickets, we need to calculate how many movie tickets can be purchased with the cost of one bus ticket. 
One bus ticket costs $4 and the price of a movie ticket is $12, so we can buy 1/3 of a movie ticket with the cost of one bus ticket. Therefore, the relative price of a bus ticket in terms of movie tickets is 1/3 of a movie ticket.

Question 12

The magnitude of the slope of the budget line is the
A)relative price of the good measured on the vertical axis.
B)relative price of the good measured on the horizontal axis.
C)absolute price of the good measured on the horizontal axis.
D)real price of the good measured on the vertical axis.
E)price of the good measured on the vertical axis.

Accepted Answer

The slope of the budget line shows the rate at which one good can be exchanged for another. Specifically, it shows the amount of the good on the vertical axis that must be given up to acquire one unit of the good on the horizontal axis. Therefore, the magnitude of the slope represents the relative price of the good on the horizontal axis, which is the best answer choice. The other answer choices are either incorrect or not as precise as choice B.

Question 13

Sarah has an income of $100. She purchases 5 pizzas at $10 each and 10 subs at $5 each. Then the government taxes subs, and the price rises to $10 each. Simultaneously, the government gives Sarah a grant of $50 in income to make up for this change. As a result, Sarah's budget line
A)becomes steeper.
B)becomes flatter.
C)shifts leftward and parallel to the original budget line.
D)shifts rightward and parallel to the original budget line.
E)swivels around the original consumption choice.

Accepted Answer

The answer of Sarah has an income of $100. She...

Question 14

Martha consumes cake and muffins. Suppose Martha's income doubles and the prices of cake and muffins also double. Martha's budget line
A)shifts leftward but the slope does not change.
B)remains unchanged.
C)shifts rightward but the slope does not change.
D)shifts rightward and becomes steeper.
E)shifts rightward and becomes flatter.

Accepted Answer

Martha's budget line is determined by her income and the prices of the goods she consumes. If her income and prices double, her budget line will simply double in absolute terms but remain in the same relative position and with the same slope. Therefore, the budget line remains unchanged.

Question 15

Suppose all prices double and income also doubles. Which statement is true?
A)The budget line does not change.
B)The slope of the budget line increases.
C)The slope of the budget line decreases.
D)The budget line shifts rightward.
E)The budget line shifts leftward.

Accepted Answer

Doubling both prices and income means that the relative prices of all goods and services remain the same. Therefore, the budget line does not shift and the slope remains unchanged.

Question 16

The budget line depends on
A)income only.
B)prices only.
C)income and prices.
D)preferences only.
E)preferences and prices.

Accepted Answer

The budget line shows the different combinations of two goods that a consumer can afford with a given income and given prices. Therefore, the budget line depends on both income and prices. Preferences may influence the consumer's choice of which point on the budget line to consume, but they do not directly influence the shape of the budget line itself.

Question 17

If the price of the good measured on the horizontal axis increases, the budget line
A)becomes steeper.
B)shifts leftward and becomes steeper.
C)shifts leftward and parallel to the original budget line.
D)shifts rightward and parallel to the original budget line.
E)becomes flatter.

Accepted Answer

If the price of the good on the x-axis increases, then the slope of the budget line must increase, making it steeper. This is because the amount of the other good that can be purchased decreases as the price of the good on the x-axis increases, and vice versa.

Question 18

The price of a cup of coffee is $2.00. The price of a cup of tea is $1.20. The relative price of a cup of tea with respect to a cup of coffee is
A)0.6 cups of coffee.
B)1.67 cups of coffee.
C)1.0 cup of coffee.
D)1.25 cups of coffee.
E)0.75 cups of coffee.

Accepted Answer

The relative price of a cup of tea with respect to a cup of coffee is calculated by dividing the price of tea by the price of coffee: $1.20 / $2.00 = 0.6 cups of coffee.

Question 19

When speaking of the price of the good measured on the horizontal axis relative to the price of the good measured on the vertical axis, which statement is true?
A)The steeper the slope of the budget line, the more expensive the good measured on the horizontal axis.
B)The steeper the slope of the budget line, the less expensive the good measured on the horizontal axis.
C)The steeper the slope of the budget line, the more expensive the good measured on the vertical axis.
D)The slope of the budget line is independent of relative prices.
E)The flatter the slope of the budget line, the more expensive the good measured on the horizontal axis.

Accepted Answer

The slope of the budget line represents the relative price of the good on the horizontal axis compared to the good on the vertical axis. A steeper slope indicates that the good on the horizontal axis is more expensive relative to the good on the vertical axis.

Question 20

Use the figure below to answer the following questions.
  
Figure 9.1.1
-Shelly's budget line is shown in Figure 9.1.1 Which point is unaffordable given her income and current prices?
A)A and B
B)B only
C)C only
D)C and D only
E)All points are unattainable.

Accepted Answer

The answer of Use the figure below to answer the...

Quiz 9: Possibilities, Preferences, and Choices

If income increases, the budget line

Use the figure below to answer the following questions. Figure 9.1.1 -Shelly's budget line is shown in Figure 9.1.1. Which points are affordable given her income and current prices?

If income decreases, the budget line

Real income in terms of a good is defined as

Marie-Louise has an income of $10 to buy peanuts and popcorn. The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2. What is Marie-Louise's real income in terms of popcorn?

Let Y = $100, QX = quantity of good X, and QW = quantity of good W, PX = $4 and PW = $5. The budget equation is

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is David's real income?

Guy has an income (Y) of $50 with which he can purchase DVDs (D) at $10 each and haircuts (H) at $20 each. Which one of the following represents Guy's budget line?

If the price of the good measured on the vertical axis increases, the budget line

The price of one good divided by the price of another good is

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is the relative price of a bus ticket in terms of movie tickets?

The magnitude of the slope of the budget line is the

Sarah has an income of $100. She purchases 5 pizzas at $10 each and 10 subs at $5 each. Then the government taxes subs, and the price rises to $10 each. Simultaneously, the government gives Sarah a grant of $50 in income to make up for this change. As a result, Sarah's budget line

Martha consumes cake and muffins. Suppose Martha's income doubles and the prices of cake and muffins also double. Martha's budget line

Suppose all prices double and income also doubles. Which statement is true?

The budget line depends on

If the price of the good measured on the horizontal axis increases, the budget line

The price of a cup of coffee is $2.00. The price of a cup of tea is $1.20. The relative price of a cup of tea with respect to a cup of coffee is

When speaking of the price of the good measured on the horizontal axis relative to the price of the good measured on the vertical axis, which statement is true?

Use the figure below to answer the following questions. Figure 9.1.1 -Shelly's budget line is shown in Figure 9.1.1 Which point is unaffordable given her income and current prices?