Question 1

If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price of good 1 will not change the horizontal intercept of the budget line.

Accepted Answer

A) True 
 B)False

Question 2

Harry thrives on two goods, paperback novels and bananas. The cost of paperback novels is 4 dollars each and the cost of bananas is 3 dollars per bunch. If Harry spent all of his income on bananas, he could afford 12 bunches of bananas per week. How many paperback novels could he buy if he spent all of his income on paperback novels?

Accepted Answer

A)  36 
B)  48 
C)  9 
D)  16 
E)  None of the above. 
A)  36 
B)  48 
C)  9 
D)  16 
E)  None of the above.

Question 3

There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information.

Accepted Answer

A) True 
 B)False

Question 4

In year 1, the price of good x was $3, the price of good y was $2, and income was $90. In year 2, the price of x was $9, the price of good y was $6, and income was $90. On a graph with x on the horizontal axis and y on the vertical, the new budget line is

Accepted Answer

A)  flatter than the old one and lies below it. 
B)  flatter than the old one and lies above it. 
C)  steeper than the old one and lies below it. 
D)  steeper than the old one and lies above it. 
E)  None of the above. 
A)  flatter than the old one and lies below it. 
B)  flatter than the old one and lies above it. 
C)  steeper than the old one and lies below it. 
D)  steeper than the old one and lies above it. 
E)  None of the above.

Question 5

Billy Bob wants to gain some weight so that he can play football. Billy consumes only milk shakes and spinach. Milk shakes cost him $1 each and spinach costs $2 per serving. A milk shake has 850 calories and a serving of spinach has 200 calories. Billy Bob never spends more than $20 a day on food and he always consumes at least 8,000 calories per day. Which of the following is necessarily true?

Accepted Answer

A)  Billy Bob consumes at least 9 milk shakes a day. 
B)  Billy Bob never consumes more than 6 servings of spinach a day. 
C)  Billy Bob never consumes positive amounts of both goods. 
D)  Billy Bob consumes only milk shakes. 
E)  None of the above. 
A)  Billy Bob consumes at least 9 milk shakes a day. 
B)  Billy Bob never consumes more than 6 servings of spinach a day. 
C)  Billy Bob never consumes positive amounts of both goods. 
D)  Billy Bob consumes only milk shakes. 
E)  None of the above.

Question 6

Maria spends her entire budget and consumes 5 units of x and 6 units of y. The price of x is twice the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If she continues to buy 6 units of y, what is the largest number of units of x that she can afford?

Accepted Answer

A)  12 
B)  10 
C)  14 
D)  5 
E)  There is not enough information to say. 
A)  12 
B)  10 
C)  14 
D)  5 
E)  There is not enough information to say.

Question 7

If she spends her entire budget, Betsy can afford 74 peaches and 9 pineapples. She can also just afford 14 peaches and 21 pineapples. The price of peaches is 17 cents. What is the price of pineapples in cents?

Accepted Answer

A)  95 cents 
B)  5 cents 
C)  22 cents 
D)  85 cents 
E)  None of the above. 
A)  95 cents 
B)  5 cents 
C)  22 cents 
D)  85 cents 
E)  None of the above.

Question 8

Lars consumes only potatoes and herring. When the price of potatoes was 9 crowns per sack and the price of herring was 5 crowns per crock, he spent his entire income to buy 5 sacks of potatoes and 10 crocks of herring per month. Now the government subsidizes potatoes. Market prices haven't changed, but consumers get a subsidy of 5 crowns for every sack of potatoes consumed. To pay for this subsidy, the government introduced an income tax. Lars pays an income tax of 20 crowns per month. If s is the number of sacks of potatoes and c is the number of crocks of herring, what is Lars's new budget equation?

Accepted Answer

A)  9s + 5c = 100. 
B)  14s + 5c = 95. 
C)  4s + 5c = 95. 
D)  4s + 5c = 75. 
E)  14s + 5c = 120. 
A)  9s + 5c = 100. 
B)  14s + 5c = 95. 
C)  4s + 5c = 95. 
D)  4s + 5c = 75. 
E)  14s + 5c = 120.

Question 9

Suppose there are two goods, the prices of both goods are positive, and a consumer's income is also positive. If the consumer's income doubles and the price of both goods triple,

Accepted Answer

A)  the consumer's budget line gets steeper and shifts inward. 
B)  the slope of the consumer's budget line does not change but the budget line shifts outward away from the origin. 
C)  the consumer's budget line gets steeper and shifts outward. 
D)  the slope of the consumer's budget line does not change but the budget line shifts inward toward the origin. 
E)  the consumer's budget line gets flatter and shifts inward. 
A)  the consumer's budget line gets steeper and shifts inward. 
B)  the slope of the consumer's budget line does not change but the budget line shifts outward away from the origin. 
C)  the consumer's budget line gets steeper and shifts outward. 
D)  the slope of the consumer's budget line does not change but the budget line shifts inward toward the origin. 
E)  the consumer's budget line gets flatter and shifts inward.

Question 10

Your budget constraint for the two goods A and B is 12A + 4B = I, where I is your income. You are currently consuming more than 27 units of B. In order to get 3 more units of A, how many units of B would you have to give up?

Accepted Answer

A)  0.33 
B)  0.11 
C)  3 
D)  9 
E)  None of the above. 
A)  0.33 
B)  0.11 
C)  3 
D)  9 
E)  None of the above.

Question 11

While traveling abroad, Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 oysters. Spaghetti costs 8 units of the local currency per plate and she had 82 units of currency in her purse. If s denotes the number of plates of spaghetti and o denotes the number of oysters purchased, the set of commodity bundles that she could just afford with the money in her purse is described by the equation

Accepted Answer

A)  8s + 6o = 82. 
B)  6s + 8o = 82. 
C)  8s + 7o = 82. 
D)  5s + 6o = 82. 
E)  There is not enough information to determine the answer. 
A)  8s + 6o = 82. 
B)  6s + 8o = 82. 
C)  8s + 7o = 82. 
D)  5s + 6o = 82. 
E)  There is not enough information to determine the answer.

Question 12

If you spent your entire income, you could afford either 6 units of x and 13 units of y or 13 units of x and 6 units of y. If you spent your entire income on x, how many units of x could you buy?

Accepted Answer

A)  19 
B)  32 
C)  24 
D)  There is not enough information to determine the number of x. 
E)  None of the above. 
A)  19 
B)  32 
C)  24 
D)  There is not enough information to determine the number of x. 
E)  None of the above.

Question 13

Suppose that the price of good x triples and the price of good y doubles while income remains constant. On a graph where the budget line is drawn with x on the horizontal axis and y on the vertical axis, the new budget line

Accepted Answer

A)  is flatter than the old one and lies below it. 
B)  is flatter than the old one and lies above it. 
C)  crosses the old budget line. 
D)  is steeper than the old one and lies below it. 
E)  is steeper than the old one and lies above it. 
A)  is flatter than the old one and lies below it. 
B)  is flatter than the old one and lies above it. 
C)  crosses the old budget line. 
D)  is steeper than the old one and lies below it. 
E)  is steeper than the old one and lies above it.

Question 14

Perry lives on avocados and beans. The price of avocados is $10, the price of beans is $5, and his income is $40. Show Perry's budget line on a graph with avocados on the horizontal axis and beans on the vertical axis. Label the point where the budget line hits the horizontal axis A and the point where the budget line hits the vertical axis B. Next to these labels, write down the number of avocados purchased at A and the number of beans purchased at B. Draw another budget line showing what Perry's budget would be if his income doubled, the price of avocados doubled, and the price of beans stayed the same. Label the point where this line hits the vertical axis C and the point where it hits the horizontal axis D. Next to these labels write the number of avocados at C and the number of beans at D.

Accepted Answer

At A there are 4 avocados and

Question 15

If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is -   .

Accepted Answer

A) True 
 B)False

Question 16

If there are two goods and the prices of both goods rise, then the budget line must become steeper.

Accepted Answer

A) True 
 B)False

Question 17

In the economy of Mungo, discussed in your workbook, there is a third person called Ike. Ike has a red income of 92 rcus and a blue income of 20 bcus. (Recall that red prices are 2 rcus [red currency units] per unit of ambrosia and 6 rcus per unit of bubble gum. Blue prices are 1 bcu [blue currency unit] per unit of ambrosia and 1 bcu per unit of bubble gum. You have to pay twice for what you buy, once in red currency and once in blue currency.) If Ike spends all of his blue income but not all of his red income, then he consumes

Accepted Answer

A)  at least 13 units of bubble gum. 
B)  at least 7 units of ambrosia. 
C)  exactly twice as much bubble gum as ambrosia. 
D)  at least 17 units of bubble gum. 
E)  equal amounts of ambrosia and bubble gum. 
A)  at least 13 units of bubble gum. 
B)  at least 7 units of ambrosia. 
C)  exactly twice as much bubble gum as ambrosia. 
D)  at least 17 units of bubble gum. 
E)  equal amounts of ambrosia and bubble gum.

Question 18

Isabella thrives on two goods: lemons and tangerines. The cost of lemons is 40 guineas each and the cost of tangerines is 20 guineas each. If her income is 320 guineas, how many lemons can she buy if she spends all of her income on lemons?

Accepted Answer

A)  6 
B)  8 
C)  16 
D)  11 
E)  None of the above. 
A)  6 
B)  8 
C)  16 
D)  11 
E)  None of the above.

Question 19

Young Alasdair loves lollipops and hates oatmeal. To induce him to eat enough oatmeal and to restrain him from eating too many lollipops, his mum pays him 10 pence for every quart of oatmeal that he eats. The only way that he can get lollipops is to buy them at the sweet shop, where lollipops cost 5 pence each. Besides what he earns from eating oatmeal, Alasdair gets an allowance of 10 pence per week. If Alasdair consumes only oatmeal and lollipops and if his consumption bundles are graphed with quarts of oatmeal on the horizontal axis and lollipops on the vertical axis, then Alasdair's budget line has a slope

Accepted Answer

A)  of 2. 
B)  of less than -2. 
C)  of -2. 
D)  of. 
E)  greater than 2. 
A)  of 2. 
B)  of less than -2. 
C)  of -2. 
D)  of. 
E)  greater than 2.

Question 20

Will spends his entire income on 8 sacks of acorns and 8 crates of butternuts. The price of acorns is 9 dollars per sack and his income is 88 dollars. He can just afford a commodity bundle with A sacks of acorns and B crates of butternuts that satisfies the budget equation

Accepted Answer

A)  9A + 4B = 88. 
B)  18A + 4B = 176. 
C)  11A + 2B = 88. 
D)  9A + 6B = 90. 
E)  None of the above. 
A)  9A + 4B = 88. 
B)  18A + 4B = 176. 
C)  11A + 2B = 88. 
D)  9A + 6B = 90. 
E)  None of the above.

Exam 1: Budget Constraint

If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price of good 1 will not change the horizontal intercept of the budget line.

There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information.

In year 1, the price of good x was $3, the price of good y was $2, and income was $90. In year 2, the price of x was $9, the price of good y was $6, and income was $90. On a graph with x on the horizontal axis and y on the vertical, the new budget line is

Maria spends her entire budget and consumes 5 units of x and 6 units of y. The price of x is twice the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If she continues to buy 6 units of y, what is the largest number of units of x that she can afford?

If she spends her entire budget, Betsy can afford 74 peaches and 9 pineapples. She can also just afford 14 peaches and 21 pineapples. The price of peaches is 17 cents. What is the price of pineapples in cents?

Suppose there are two goods, the prices of both goods are positive, and a consumer's income is also positive. If the consumer's income doubles and the price of both goods triple,

Your budget constraint for the two goods A and B is 12A + 4B = I, where I is your income. You are currently consuming more than 27 units of B. In order to get 3 more units of A, how many units of B would you have to give up?

If you spent your entire income, you could afford either 6 units of x and 13 units of y or 13 units of x and 6 units of y. If you spent your entire income on x, how many units of x could you buy?

Suppose that the price of good x triples and the price of good y doubles while income remains constant. On a graph where the budget line is drawn with x on the horizontal axis and y on the vertical axis, the new budget line

If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is - .

If there are two goods and the prices of both goods rise, then the budget line must become steeper.

Isabella thrives on two goods: lemons and tangerines. The cost of lemons is 40 guineas each and the cost of tangerines is 20 guineas each. If her income is 320 guineas, how many lemons can she buy if she spends all of her income on lemons?

Will spends his entire income on 8 sacks of acorns and 8 crates of butternuts. The price of acorns is 9 dollars per sack and his income is 88 dollars. He can just afford a commodity bundle with A sacks of acorns and B crates of butternuts that satisfies the budget equation

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

Market Demand

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Information Technology

A: Information Technology

If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p₁ and the price of good 2 is p₂, then the slope of the budget line is - .