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Microeconomics

Learn the toughest concepts covered in Microeconomics with step-by-step video tutorials and practice problems by world-class tutors

Consumer Choice and Behavioral Economics

Budget Constraint

1

concept

Budget Constraint (Budget Line)

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2

Problem

The Amazing Andy spends all of his $1,200 income on magic tricks. If card tricks cost $50 and wand tricks cost $300, which of the following consumption bundles lies upon Amazing Andy’s budget constraint?

A

10 card tricks and 2 wand tricks

B

8 card tricks and 3 wand tricks

C

24 card tricks and 4 wand tricks

D

18 card tricks and 1 wand tricks

3

concept

Budget Constraint:Change in Income

3m

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4

Problem

An increase in income will:

A

Increase the slope of the budget constraint

B

Decrease the slope of the budget constraint

C

Shift the budget constraint inward

D

Shift the budget constraint outward

5

concept

Budget Constraint:Change in Price of a Good

3m

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6

Problem

A change in the price of one good will:

A

Affect the slope of the budget constraint

B

Not affect the slope of the budget constraint

C

Shift the budget constraint inward

D

Shift the budget constraint outward

7

Problem

A consumption bundle inside the budget line

A

Is unaffordable

B

Implies a situation where the consumer spends all of his income on both goods

C

Implies a situation where the consumer purchases only one good

D

Is affordable and all available income has been spent

E

Is affordable but has some unspent income

8

Problem

Lil Kiddo just got $10 for his allowance. He has big dreams for that money and plans to buy out the toy store, slapping down the tenner at the cash register. Disillusioned, he decides to buy pogs for $0.50 each and action figures for $2 each. Which consumption bundle is unaffordable to Lil Kiddo?

A

0 pogs and 0 action figures

B

8 pogs and 3 action figures

C

5 pogs and 4 action figures

D

10 pogs and 2 action figures

9

Problem

Campin’ Sam buys firewood and ice. When the price of firewood decreases, the maximum number of firewood she can purchase _____________ and the maximum number of ice she can purchase _______________

A

Increases; increases

B

Increases; decreases

C

Decreases; increases

D

Increases; remains constant

E

Remains constant; remains constant

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