Exam 2: A Consumers Economic Circumstances

If all consumers are price-takers facing the same prices,then all choice sets are the same.

Consider a consumer with a choice set that emerges from an exogenous income I.Suppose that,as a result of changes in a consumer's economic circumstances,the budget line rotates outward,with the vertical intercept remaining unchanged but the horizontal intercept shifting to the right.How could this have happened if the price of the good on the horizontal axis did not change?

For choice sets generated from endowment bundles,the budget line will shift parallel if both prices change by the same proportion.

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? 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.