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15 Cards in this Set
- Front
- Back
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budget lines are drawn on a diagram with a...
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D. quantity of one good on the vertical axis and the quantity of another good on the horizontal
axis. |
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the budget line...(blank)...
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A. shows the limits to a household's consumption choices
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In order to determine a household's budget line, you must know the...
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A. prices of the goods bought and the household's income
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Moving along a given budget line
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D. prices and real income are constant.
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Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is
$1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys 12 gallons of milk, how many dozens of cookies will he buy if he spends all of his income? |
C. 14
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Larry spends all his $800 monthly income on pizza and gasoline. The price of pizza is $4 a
slice, and the price of gasoline is $2 per gallon. If Larry buys 150 slices of pizza per month, his budget constraint will allow him to buy ________ gallons of gas per month. |
A. 100
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Jordan has two goods that he consumes this week. He can choose to go to the arcade and play
video games or he can purchase baseball cards. The price of each video game is $.50 and each pack of baseball cards is $1. Jordan will spend all his allowance this week on these two goods. Jordan's consumption possibilities are listed in the table above. What is the amount of Jordan's allowance? |
B. $5
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Jordan has two goods that he consumes this week. He can choose to go to the arcade and play
video games or he can purchase baseball cards. The price of each video game is $.50 and each pack of baseball cards is $1. Jordan will spend all his allowance this week on these two goods. Jordan's consumption possibilities are listed in the table above. For Jordan, what is the opportunity cost of moving from consumption possibility D to E? |
D. two video games
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If the relative price of pizza in terms of movies is 3, this means that
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A) the opportunity cost of a pizza is 3 movies.
B) 3 pizzas can be traded for 9 movies. C) in terms of the dollars that must be spent to buy the product, pizza is more expensive than movies. All the above! |
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Indifference curves are
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bowed in toward the origin if there is diminishing marginal rate of substitution.
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The assumption of diminishing marginal rate of substitution means that
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D. indifference curves will be concave.
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In an indifference curve/budget line diagram, a consumer will select the combination of
goods that is on the budget line and for which the |
A. marginal rate of substitution between two goods is equal to the relative price of the two
goods. |
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Gasoline is a normal good. If the price of gasoline falls, a consumer buys more gasoline
because of |
D. both an income effect and a substitution effect
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According to the substitution effect along an indifference curve, when the relative price of a
good falls, the consumer ________ substitutes ________ of that good for the other good. |
A. always; more
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Sue consumes only sandwiches and soda and is at her best affordable point. The price of a
sandwich falls. The substitution effect is that Sue substitutes ________ for ________. The income effect is that Sue ________. |
C) sandwiches; soda; buys more of both goods
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