Suppose that the price of commodity Y is $1 per unit while the price of commodity X is $2 per unit and suppose that an individual’s money income is $16 per time period and is all spent on X and Y. (a) Draw the budget constraint line for this consumer and (b) explain the reason for the shape and the properties of the budget constraint line in part (a).

Suppose that the price of commodity Y is $1 per unit while the price of commodity X is $2 per unit and suppose that an individual’s money income is $16 per time period and is all spent on X and Y. (a) Draw the budget constraint line for this consumer and (b) explain the reason for the shape and the properties of the budget constraint line in part (a).

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 25SQ

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Assuming the two good case. When a person is attempting to maximize utility and the price of one of the two goods increases, then: a. The budget constraint will expand (rotate away from the origin), shifting the budget line outward indicating fewer choices are now affordable and a lower utility level is now possible. b. The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating more choices are now affordable and a lower utility level is now possible. c. The budget constraint will contract (rotate towards the origin), shifting the budget line outward indicating fewer more are now affordable and a higher utility level is now possible. d. The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating fewer choices are now affordable and a lower utility level is now possible.
Assuming the two good case. When a person is attempting to maximize utility and the price of one of the two goods increases, then: The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating more choices are now affordable and a lower utility level is now possible. The budget constraint will contract (rotate towards the origin), shifting the budget line outward indicating fewer more are now affordable and a higher utility level is now possible. The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating fewer choices are now affordable and a lower utility level is now possible.
A budget constraint, budget set or budget line: 1. Illustrates the combination of units of consumption across two goods that are not affordable, given prices and income. The outer most boundary signifies a person is consuming at a level that exceeds all income. 2. Illustrates the combination of units of consumption across two goods that are unattainable, given prices and income. The outer most boundary signifies a person is consuming at a level that fails to exhaust all income. 3. Illustrates the combination of units of consumption across two goods that are affordable, given prices and income. The outer most boundary signifies a person is consuming at a level that maximizes savings. 4. Illustrates the combination of units of consumption across two goods that are affordable, given prices and income. The outer most boundary signifies a person is consuming at a level that exhausts all income.
A) -Rhea's MRS is unaffected by the price change, -Rhea's optimal budget decision rule is unaffected by the price change, -Rhea's budget constraint is unaffected by the price change, - All of the above are changed B) -Rhea buys less milk at her new consumer equilibrium, -Rhea buys more milk at her new consumer equilibrium, -Rhea buys the same amount of milk at her new consumer equilibrium, -Rhea buys no milk at her new consumer equilibrium C) -Rhea buys less bread at her new consumer equilibrium, -Rhea buys more bread at her new consumer equilibrium, -Rhea buys the same amount of bread at her new consumer equilibrium, -Rhea buys no bread at her new consumer equilibrium D) -Her utility increases, -Her utility decreases, -Her utility is unchanged, -Her utility could increase or decrease
Assuming the two good case. When a person is attempting to maximize utility and income increases, then: a. The budget constraint expands, shifting the budget line outward indicating more choices are now affordable and a higher utility level is now possible. b. The budget constraint contracts, shifting the budget line outward indicating more choices are now affordable and a higher utility level is now possible. c. The budget constraint expands, shifting the budget line inward indicating more choices are now affordable and a lower utility level is now possible. d. The budget constraint contracts, shifting the budget line outward indicating more choices are now affordable and a lower utility level is now possible.
Suppose that the price of commodity Y is $ 20 per unit while the price of commodity X is $ 15 per unit and suppose that an individual’s money income is $ 100 per period and is all spent on X & Y. i. Draw the budget constraint line for this consumer at the initial point.
Suppose that the price of commodity Y is $2 per unit while the price of commodity X is $4 per unit and suppose that an individual’s money income is $100 per time period and is all spent on X and Y. Draw the budget constraint line for this consumer at the initial point. 2.If the price of Y decreases to $3, incorporate BL2 showing change in the Budget line.
Suppose that the price of commodity Y is $1 per unit while the price of commodity X is $2 per unit and suppose that an individual’s money income is $16 per time period and is all spent on X and Y. (a) Draw the budget constraint line for this consumer and explain the reason for the shape and the properties of the budget constraint line
If the budget constraint shifts from BC2 to BC1, then A. the consumer decreased the amount budgeted for these two goods. B. the consumer increased the amount budgeted for these two goods. C. the price of the X good increased. D. the price of the Y good increased. E. the price of the Y good decreased.
Options: i. A)the budget constraint experiences a parallel shift inward B)the budget constraint experiences a parallel shift outward C)the budget constraint rotates inward along the groceries axis D) the budget constraint rotates outward along the restaurant meals axis ii) A)Steepens the slope of the budget constraint B)Flattens the slope of the budget constraint C)has no effect on the slope of the budget constraint iii) A)Yes, Bundle B is affordable B) No, Bundle B is unaffordable C) More information is needed to answer the question
The slope of the budget constraint is all of the following except …........ a) the relative price of two goods. b) the rate at which a consumer can afford to trade one good for another. c) constant. d) the marginal rate of substitution.
Which of the following statements about a budget line is correct? The opportunity cost of the good is represented by the slope of the budget line measured along the x-axis. Consuming more of one thing entails consuming more of the other in terms of budget. The budget line shifts leftward as the consumer's budget increases, but the slope remains unchanged. Because the consumer may afford both things, the slope of the budget line indicates that there is no tradeoff between them. None of the above.