Question 1

Suppose inflation comes in the form of an across-the board increase in all prices by some percentage k.For a consumer with exogenous income operating in a 2-good world, this will cause the budget constraint to

Accepted Answer

A)  rotate inward
B)  rotate outward
C)  shift out in a parallel way
D)  shift inward in a parallel way
E)  none of the above

Question 2

In a graph of choice sets, a price change causes the slope of budget lines to change.

Accepted Answer

A) True 
 B)False

Question 3

Suppose a business offers a 10% discount on the good x1 that it sells.
a.Illustrate a consumer's before and after-discount budget constraint by modeling x2 as a composite good.
b.Suppose you observe only the after-discount consumption decision of the consumer.Can you tell from this information how much revenue the firm is giving up (from this consumer) by offering the discount? If so, illustrate this in your graph.
c.Suppose that, instead of the firm offering the 10% discount, the government subsidized consumption of x1 sufficiently to reduce p1 by 10%.Suppose again that you only observe the after-subsidy decision of the consumer.Can you tell how much of a subsidy payment is made to this consumer by the government? If so, illustrate it in your graph.
d.Why are your answers to (b) and (c) different?

Accepted Answer

a. The graph should contain two budget l...

Question 4

While the endowment bundle must lie on the original budget line, it need not lie on the budget line when prices change.

Accepted Answer

A) True 
 B)False

Question 5

Suppose you are given a coupon for pizza.This coupon lowers the price for each additional pizza you buy by 5% for each addition pizza you buy.What happens to your budget constraint, with pizza on the horizontal axis and a composite good on the vertical?

Accepted Answer

A)  The vertical intercept remains the same but the slope becomes steeper as more pizzas are bought.
B)  The vertical intercept increases and the slope becomes steeper as more pizzas are bought.
C)  The vertical intercept remains the same but the slope becomes shallower as more pizzas are bought.
D)  The vertical intercept increases but the slope becomes shallower as more pizzas are bought.
E)  None of the above.

Question 6

The following changes in a consumer's economic circumstances result in a steeper budget line with the vertical intercept unchanged.(Denote the good on the horizontal as good 1 and the good on the vertical as good 2.)

Accepted Answer

A)  A k percent decrease in the price of good 2 combined with a k percent decrease in income
B)  A k percent increase in the price of good 2 combined with a k percent decrease in income
C)  A k percent decrease in the price of good 2 combined with a k percent increase in income
D)  A k percent increase in the price of good 2 combined with a k percent increase in income.
E)  None of the above

Exam 2: A Consumers Economic Circumstances

The following changes in a consumer's economic circumstances result in a steeper budget line with the vertical intercept unchanged.(Denote the good on the horizontal as good 1 and the good on the vertical as good 2.)

Correct Answer
verified

In a graph of choice sets, a price change causes the slope of budget lines to change.

Correct Answer
verified

Suppose inflation comes in the form of an across-the board increase in all prices by some percentage k.For a consumer with exogenous income operating in a 2-good world, this will cause the budget constraint to

Correct Answer
verified

Suppose you are given a coupon for pizza.This coupon lowers the price for each additional pizza you buy by 5% for each addition pizza you buy.What happens to your budget constraint, with pizza on the horizontal axis and a composite good on the vertical?

Correct Answer
verified

Correct Answer
verified
a. The graph should contain two budget l...
View Answer

While the endowment bundle must lie on the original budget line, it need not lie on the budget line when prices change.

Correct Answer
verified

Exam 2: A Consumers Economic Circumstances

The following changes in a consumer's economic circumstances result in a steeper budget line with the vertical intercept unchanged.(Denote the good on the horizontal as good 1 and the good on the vertical as good 2.)

Correct AnswerverifiedShow Answer

In a graph of choice sets, a price change causes the slope of budget lines to change.

Correct AnswerverifiedShow Answer

Suppose inflation comes in the form of an across-the board increase in all prices by some percentage k.For a consumer with exogenous income operating in a 2-good world, this will cause the budget constraint to

Correct AnswerverifiedShow Answer

Suppose you are given a coupon for pizza.This coupon lowers the price for each additional pizza you buy by 5% for each addition pizza you buy.What happens to your budget constraint, with pizza on the horizontal axis and a composite good on the vertical?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The graph should contain two budget l...View AnswerShow Answer

While the endowment bundle must lie on the original budget line, it need not lie on the budget line when prices change.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The graph should contain two budget l...
View Answer

Correct Answer
verified