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Budget Constraint quiz #1 Flashcards

Budget Constraint quiz #1
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  • Which of the following best describes a budget line in microeconomics?
    A budget line (or budget constraint) shows all possible combinations of two goods that a consumer can afford given their income and the prices of the goods.
  • What does every point on a budget line represent?
    Every point on a budget line represents a combination of two goods that uses all of the consumer's income.
  • Which of the following combinations are attainable given a consumer's budget line?
    Any combination of goods that lies on or inside the budget line is attainable, as it does not exceed the consumer's income.
  • The slope of a budget constraint line is influenced by what factors?
    The slope of a budget constraint line is determined by the relative prices of the two goods.
  • When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:
    She is spending less than or equal to her total available income and not exceeding her budget.
  • The typical pattern revealed in a budget constraint model shows that as the quantity consumed of one good rises, what happens?
    As the quantity consumed of one good rises, the quantity of the other good that can be purchased falls, given a fixed income and prices.
  • How do you calculate the maximum quantity of a good a consumer can buy given their income and the price of the good?
    Divide the consumer's income by the price of the good; this gives the maximum quantity that can be purchased if only that good is bought.
  • What happens to the budget constraint when a consumer's income increases, assuming prices remain constant?
    The budget constraint shifts outward, allowing the consumer to afford more of both goods.
  • If the price of one good increases while income and the other good's price remain constant, how does the budget constraint change?
    The maximum quantity of the more expensive good decreases, causing the budget constraint to rotate inward along that axis while the other axis remains unchanged.
  • On a budget constraint graph, what do the axes typically represent?
    Each axis represents the quantity of one of the two goods being considered, not price.