Question 1

Suppose the price of A is $20 and the price of B is $10 and that good A is plotted on the horizontal axis. If the price of B doubles and the price of B triples, leaving the consumer's income unchanged, the budget line
A) will become steeper.
B) will become flatter.
C) will shift in toward the origin.
D) will shift out from the origin.

Accepted Answer

B

Question 2

Suppose that a consumer's income triples. However, at the same time, both the price of x and the price of y also triple. This consumer has experienced
A) an increase in purchasing power.
B) a decrease in purchasing power.
C) no change in purchasing power.
D) a pivot in the budget constraint with an undetermined effect on purchasing power.

Accepted Answer

The increase in income and prices cancel each other out, resulting in no change in the consumer's purchasing power. The budget constraint will shift outward since the consumer's income has tripled, but this increase will be offset by the increase in prices, leading to no change in the quantity of x and y that the consumer can afford.

Question 3

Suppose a consumer has an income I = $50 which he/she spends on pizza and tacos per month. The price of pizza is $10 and the price of tacos is $5. If the units of pizza consumed per month is on the x-axis and the units of tacos consumed per month is on the y-axis, the slope of the budget line is equal to
A) 1/2
B) 2
C) -2
D) 2I

Accepted Answer

C

Question 4

A set of baskets that a consumer can purchase with a limited amount of income is
A) Consumer choice
B) Consumer purchase
C) Budget Constraint
D) Budget line

Accepted Answer

A budget constraint is a set of baskets a consumer can purchase with a limited amount of income. It represents the combinations of two goods that a consumer can afford to buy with a specific amount of money. Therefore, the correct answer is C. The other options are not the appropriate definition for this concept.

Question 5

If food is on the x-axis and clothing is on the y-axis, using the information in problem 1 above, the consumer is at the
A) point of maximum indifference.
B) y-intercept.
C) interior of the budget constraint.
D) origin.

Accepted Answer

The answer of If food is on the x-axis and...

Question 6

Let I be the income of the consumer, P_x be the price of good x and P_y be the price of good y. If good $x$ is measured along the horizontal axis and good $y$ is measured along the vertical axis, then the " $x$ -intercept" measures the maximum amount of good $x$ that the consumer can afford, which can be expressed as A) $P _ { x } / P _ { y }$ B) $I / P _ { y }$ C) $I / P _ { x }$ D) $P _ { x } / I$

Accepted Answer

The maximum amount of good $x$ that the consumer can afford is given by the budget constraint equation:
$$P_{x}S_{1U1B1}^{x}+P_{y}S_{1U1B1}^{y}=I$$
Solving for $S_{1U1B1}^{x}$, we get:
$$S_{1U1B1}^{x}=\frac{I}{P_{x}}-\frac{P_{y}}{P_{x}}S_{1U1B1}^{y}$$
At the $x$-intercept, $S_{1U1B1}^{y}=0$, so we have:
$$S_{1U1B1}^{x}=\frac{I}{P_{x}}$$
Therefore, the maximum amount of good $x$ that the consumer can afford is equal to their income divided by the price of good $x$, which is option C.

Question 7

Suppose the price of A is $20 per unit, the price of B is $10 per unit, and the consumer's income is $1000 per month. Which of the following baskets is not on the consumer's budget line?
A) A = 40, B = 20
B) A = 5, B = 90
C) A = 2.5, B = 95
D) A = 20, B = 40

Accepted Answer

The budget line equation is 20A + 10B = 1000. For option D, 20(20) + 10(40) = 400 + 400 = 800, which is not equal to 1000, so it is not on the budget line.

Question 8

If good $x$ is measured along the horizontal axis and good $y$ is measured along the vertical axis, then the slope of the budget constraint can be expressed as
A) - $P _ { x } / P _ { y }$
B) - $I / P _ { y }$
C) - $I / P _ { x }$
D) - $P _ { y } / P _ { x }$

Accepted Answer

The slope of the budget constraint represents the rate at which a consumer can trade one good for another while staying within their budget. The opportunity cost of good x in terms of good y is the ratio of their prices, which is P_x/P_y. However, since the slope of the line is measured in terms of y/x (vertical change over horizontal change), we need to take the reciprocal of the opportunity cost to get the slope. Therefore, the slope of the budget constraint is -P_x/P_y, which corresponds to choice A.

Question 9

Evaluate the truthfulness of the following statements. 
I. The budget constraint is a function of consumer preferences.
II) The budget constraint defines the set of baskets that a consumer can purchase with a specific level of income.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Accepted Answer

The budget constraint is determined by the consumer's income and prices of goods, not preferences. It defines the set of baskets a consumer can afford, making statement II true.

Question 10

An agent consumes goods x and y, with prices P_x = $5 per unit and P_y = $8 per unit. The consumer's income is I = $48. The government imposes a tax of $1 per unit on good x. What is the new equation for the budget constraint? A) y = 6 - (5/8)x B) y = 6 - .75x C) y = 8 - (6/8)x D) y = 48 - 8x

Accepted Answer

With a tax of $1 per unit on good x, the new price of x is P_x + tax = $6 per unit. Thus, the new budget constraint equation is: P_xx + P_yy = I, or 6x + 8y = 48. Solving for y, we get y = 6 - 0.75x, which matches with option B.

Question 11

Suppose a consumer has an income equal to I which he/she spends on either food or clothing. The price of food is given by P_f and the price of clothing is given by P_c. If the consumer spends all of his/her income on clothing, the expression for the number of units of clothing he/she buys is A) I/P_f B) I x P_c C) I/P_c D) I

Accepted Answer

The number of units of clothing the consumer buys is simply the ratio of the consumer's income to the price of clothing. Therefore, the expression is I/P_c.

Question 12

Identify the statement that is false.
A) An increase in the amount of income changes the intercepts of the budget constraint but not the slope.
B) An increase in the price of good x changes both the x -intercept and the slope of the budget constraint.
C) An increase in the price of good x and an equal percentage increase in the price of good y changes the x -intercept, the y -intercept, and the slope of the budget constraint.
D) An increase in the price of good x and an increase in the price of good
y may or may not change the slope of the budget constraint.

Accepted Answer

An increase in the price of good x and an equal percentage increase in the price of good y changes the x-intercept, the y-intercept, and the slope of the budget constraint. This statement is false as only the intercepts, not the slope, will change in this scenario.

Question 13

Suppose all prices double and income triples. The budget line
A) will become steeper.
B) will become flatter.
C) will shift in toward the origin.
D) will shift out from the origin.

Accepted Answer

When all prices double and income triples, the budget line shifts out from the origin because the consumer can now afford more of both goods, indicating an increase in purchasing power relative to the original prices.

Question 14

Using the information in problem 3 above and letting Z = the quantity of pizza per months and T = the number of tacos per month, the equation for the budget line is best represented by
A) 10 = 10Z + 5T
B) 1000 = 20Z + 10T
C) 50 = 10Z + 5T
D) 1000 = A + B

Accepted Answer

The budget line represents the possible combinations of pizza and tacos that can be purchased within the monthly budget of $50. The equation for the budget line can be written as: total cost = (price of pizza x quantity of pizza) + (price of tacos x quantity of tacos), or 50 = 10Z + 5T. Therefore, choice C is the correct equation for the budget line.

Question 15

If a consumer purchases two goods, food (measured along the x-axisaxis) and housing (measured along the y axis), then what happens to the slope of the consumer's budget constraint if the price of food falls?
A) The new budget constraint shifts inward but is parallel to the original budget constraint.
B) The new budget constraint pivots inward (towards the origin) along the  x-axis. The new slope is steeper than the original slope.
C) The new budget constraint pivots inward (towards the origin) along the  x-axis. The new slope is flatter than the original slope.
D) The new budget constraint pivots outward (away from the origin) along the x-axis. The new slope is flatter than the original slope.

Accepted Answer

When the price of food falls, the consumer can buy more food for the same amount of money, causing the budget constraint to pivot outward along the x-axis. The slope becomes flatter because the price ratio of food to housing decreases.

Question 16

Suppose a consumer purchases two goods, A and B , and that the price of A doubles, the consumer's income doubles, and the price of B remains unchanged. If good A is plotted on the horizontal axis, the budget line
A) will remain unchanged.
B) will become steeper.
C) will become flatter.
D) will shift out from the origin parallel to the original budget line.

Accepted Answer

When the price of good A doubles and the income doubles, the consumer will have the same amount of income to allocate to both goods A and B. Since good A is more expensive, the consumer will be able to afford to purchase less of it, and more of good B. This means that the budget line will rotate inward from the y-intercept (representing good B) and become steeper, as the consumer has to give up more good B to purchase the same amount of good A as before.

Question 17

Suppose the price of A is $20 per unit, the price of B is $10 per unit, and the consumer's income is $1000 per month. The equation of the budget line is
A) 1000 = 10A + 20B
B) 1000 = 20A + 10B
C) 20A = 10B
D) 1000 = A + B

Accepted Answer

The equation of the budget line is given by:
Budget = Price of A x Quantity of A + Price of B x Quantity of B
Substituting the given values, we get:
1000 = 20A + 10B
Solving for one variable, we get the equation of the budget line, which is a straight line with intercepts on the A and B axes as (50,0) and (0,100), respectively. The slope of the line is -2, indicating that the consumer can buy 2 units of B for every unit of A foregone. The optimal choice depends on the consumer's preferences, but any point on the budget line is feasible given the prices and income.

Question 18

Evaluate the truthfulness of the following statements. 
I. All points to the interior of the budget constraint are affordable.
II) All points that lie on the budget constraint cost the same amount of money.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Accepted Answer

I. All points to the interior of the budget constraint are affordable. This is true because any point inside the budget constraint represents a combination of goods that can be purchased with the given budget.II) All points that lie on the budget constraint cost the same amount of money. This is also true because any point on the budget constraint represents a combination of goods that exhausts the entire budget.

Question 19

If a consumer purchases two goods, food (measured along the $x$ axis) and housing (measured along the $y$ axis), and if the price of food is $3 per unit and the price of housing is $400 per unit, then what is the slope of the consumer's budget constraint if the consumer has an income of $600?
A) -3/600.
B) -3/400
C) -400/600
D) -400/3

Accepted Answer

The equation for the budget constraint can be written as:
$$3x+400y=600$$
Solving for $y,$ we get:
$$y=\frac{600}{400}-\frac{3}{4}x=\frac{3}{4}\left(200-x\right)$$
This is a linear equation of the form $y=a+bx$ where $a=\frac{3}{4}(200)$ and $b=-\frac{3}{4}.$ The slope of the budget constraint is the coefficient of $x,$ which is $-\frac{3}{4}.$ Therefore, the answer is B, $-3/400.$

Question 20

The budget line
A) represents the set of all baskets the consumer can afford.
B) represents the set of all baskets the consumer can afford while spending all available income.
C) represents the set of all baskets that give the consumer the same level of utility while holding spending constant.
D) represents the set of all baskets in which the consumer purchases only one of the goods.

Accepted Answer

The budget line represents the set of all baskets the consumer can afford while spending all available income. It shows the various combinations of two goods that can be purchased with a given amount of income at prevailing market prices.

Quiz 4: Consumer Choice

Suppose the price of A is $20 and the price of B is $10 and that good A is plotted on the horizontal axis. If the price of B doubles and the price of B triples, leaving the consumer's income unchanged, the budget line

Suppose that a consumer's income triples. However, at the same time, both the price of x and the price of y also triple. This consumer has experienced

A set of baskets that a consumer can purchase with a limited amount of income is

If food is on the x-axis and clothing is on the y-axis, using the information in problem 1 above, the consumer is at the

Suppose the price of A is $20 per unit, the price of B is $10 per unit, and the consumer's income is $1000 per month. Which of the following baskets is not on the consumer's budget line?

If good $x$ is measured along the horizontal axis and good $y$ is measured along the vertical axis, then the slope of the budget constraint can be expressed as

Evaluate the truthfulness of the following statements. I. The budget constraint is a function of consumer preferences. II) The budget constraint defines the set of baskets that a consumer can purchase with a specific level of income.

An agent consumes goods x and y, with prices P_x = $5 per unit and P_y = $8 per unit. The consumer's income is I = $48. The government imposes a tax of $1 per unit on good x. What is the new equation for the budget constraint?

Suppose a consumer has an income equal to I which he/she spends on either food or clothing. The price of food is given by P_f and the price of clothing is given by P_c. If the consumer spends all of his/her income on clothing, the expression for the number of units of clothing he/she buys is

Identify the statement that is false.

Suppose all prices double and income triples. The budget line

Using the information in problem 3 above and letting Z = the quantity of pizza per months and T = the number of tacos per month, the equation for the budget line is best represented by

If a consumer purchases two goods, food (measured along the x-axisaxis) and housing (measured along the y axis) , then what happens to the slope of the consumer's budget constraint if the price of food falls?

Suppose a consumer purchases two goods, A and B , and that the price of A doubles, the consumer's income doubles, and the price of B remains unchanged. If good A is plotted on the horizontal axis, the budget line

Suppose the price of A is $20 per unit, the price of B is $10 per unit, and the consumer's income is $1000 per month. The equation of the budget line is

Evaluate the truthfulness of the following statements. I. All points to the interior of the budget constraint are affordable. II) All points that lie on the budget constraint cost the same amount of money.

If a consumer purchases two goods, food (measured along the $x$ axis) and housing (measured along the $y$ axis) , and if the price of food is $3 per unit and the price of housing is $400 per unit, then what is the slope of the consumer's budget constraint if the consumer has an income of $600?

The budget line