Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 
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

Question 4

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 
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 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. 
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

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

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

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

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.)

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

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?

Introduction

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

Filters

Exam 2: A Consumers Economic Circumstances

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

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

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.)

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

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?

Introduction

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

Filters