Question 1

Suppose a consumer has an income of $$18 to spend on two goods: Vodka (6 $$per unit) and Beer ($3 per unit). What is the maximum quantity of Vodka the consumer can purchase if all income is spent on Vodka?

Accepted Answer

$$3$$

Question 2

If the price of Beer decreases from $$3 to 1 $$while income and the price of Vodka remain unchanged, what happens to the consumer's budget constraint?

Accepted Answer

The budget constraint pivots outward along the Beer axis

Question 3

Which of the following equations correctly represents the budget constraint for a consumer with income $$I$$, price of Vodka $$P_v$$, and price of Beer $$P_b$$?

Accepted Answer

$$I = P_v Q_v + P_b Q_b$$

Question 4

If a consumer's income increases, what happens to the budget constraint?

Accepted Answer

It shifts outward parallel to the original constraint

Question 5

A consumption bundle is considered unaffordable if:

Accepted Answer

It lies outside the budget line

Question 6

If the price of Vodka increases, holding income and the price of Beer constant, what happens to the budget constraint?

Accepted Answer

The budget constraint pivots inward along the Vodka axis

Question 7

Given income $$I = 24$$, $$P_v = 6$$, and $$P_b = 3$$, what is the formula for the maximum quantity of Beer the consumer can purchase?

Accepted Answer

$$\frac{I}{P_b}$$

Question 8

Which of the following best describes the effect of a decrease in the price of one good on the budget constraint?

Accepted Answer

The budget constraint pivots outward along the axis of the good whose price decreased

Question 9

If a consumption bundle lies inside the budget line, what does this imply?

Accepted Answer

The consumer has some unspent income

Question 10

A student has $$\10$ to spend on pens ($$\$$2$$ each) and notebooks ($$\1$ each). Which bundle is unaffordable?

Accepted Answer

3 pens and 5 notebooks

Question 11

If the price of firewood decreases, what happens to the maximum number of firewood bundles a consumer can purchase, holding income constant?

Accepted Answer

It increases

Question 12

Which of the following statements is true about the slope of the budget constraint?

Accepted Answer

It equals $$-\frac{P_v}{P_b}$$

Question 13

If a consumer spends all income on only one good, where does the consumption bundle lie?

Accepted Answer

On the axis of that good, on the budget line

Question 14

A shift in the budget constraint outward can be caused by:

Accepted Answer

An increase in income

Question 15

If the price of both goods doubles and income remains the same, what happens to the budget constraint?

Accepted Answer

It shifts inward, and the consumer can afford half as much of each good

Question 16

Which of the following bundles is affordable for a consumer with $$\12$ income, if magic tricks cost $$\$$3$$ each and wand tricks cost $$\2$ each?

Accepted Answer

2 card tricks and 3 wand tricks

Question 17

If the price of Beer increases, what happens to the maximum quantity of Beer a consumer can purchase with a fixed income?

Accepted Answer

It decreases

Question 18

Which of the following best describes a budget constraint?

Accepted Answer

It shows the combinations of goods a consumer can afford given income and prices

Question 19

If a consumer's income is $$\24$, the price of Vodka is $$\$$6$$, and the price of Beer is $$\3$, what is the equation for the budget line?

Accepted Answer

$$24 = 6Q_v + 3Q_b$$

Question 20

If a consumer chooses a bundle on the budget line, what does this imply?

Accepted Answer

The consumer spends all income

Budget Constraints in Microeconomics: Concepts, Graphs, and Applications

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