Consumer Theory and Budget Line

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Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Guy has an income (Y) of $50 with which he can purchase DVDs (D) at $10 each and haircuts (H) at $20 each. Which one of the following represents Guy 's budget line? A) 50 = 10QD + 20Q H B) 50 = QD + QH C) 20Y = QD + 10Q H D) Y = 10QD - 20Q H E) Y = 50 + QD + QH 1) 2) David has an income of $30 to buy movie tickets and bus tickets. The price of a movie ticket is $6 and the price of a bus ticket is $2. What is David 's real income? A) $38 B) $30 C) $32 D) 5 movie tickets or 15 bus tickets E) 15 movie tickets or 5 bus tickets 2) 3) The magnitude of the slope of the…show more content…
A) The income effect dominates the substitution effect. B) As income increases, consumption decreases. C) The income effect reinforces the substitution effect. D) As price falls, we cannot tell whether consumption increases or decreases. E) As income increases, consumption remains constant. 13) 14) What is a distinguishing characteristic of an inferior good? A) a negative price effect B) a negative income effect C) a positive income effect D) an upward-sloping demand curve E) a positive substitution effect 14) 15) The substitution effect is the effect of A) a change in income on the quantity bought when the consumer moves to a higher indifference curve. B) a change in the best affordable point. C) a change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve. D) a change in income on the quantity bought. E) a change in price on the quantity bought when the consumer moves to a higher indifference curve. 15) 4 16) Which one of the following statements is always true of the substitution effect? A) It is negative. B) It leads to a positive income effect. C) It decreases consumption. D) It leads to a negative income effect. E) It is positive. 16) 17) If the price of a normal good rises, the income effect A) will decrease consumption of the good and the substitution effect will increase consumption. B) will increase consumption of the good and the
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