J/02/3/04
1 The diagram shows a consumer‟s budget line PQ when the consumer‟s income was $20 per day and the prices of X and Y were $2 and $1.25 respectively.
Y
P
Q S
R
0 10 20
12 16
X
The consumer‟s income increases to $30 and, at the same time, the prices of X and Y change.
If the consumer‟s budget line is now RS, what are the new prices of X and Y?
X Y
A $1.50 $2.50
B $1.80 $1.00
C $2.50 $1.50
D $3.00 $2.50
N/02/3/03
2 In the diagram, KN is a budget line showing the different combinations of two normal goods, X andY, that a consumer is able to purchase. A consumer initially chooses point L on the budget line.
good X
good Y O
L K
M
N
In a subsequent period, the consumer chooses the combination of X and Y shown by point M.
What could explain this change?
A a change in the consumer‟s preferences
B an increase in the consumer‟s income and an increase in the price of Y C a reduction in the consumer‟s income
D a reduction in the consumer‟s income and a reduction in the price of X
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Understanding Economics 33 2-Budget Line
J/03/3/03
3 The diagrams show a change in a consumer's budget line from an initial position of LL1 to LL2.
Which diagram shows the effect of a fall in the price of X, money income remaining unchanged?
all other goods
O
A B
C D
O units of X
all other goods
units of X L1
L2
L
L
L2 L1
all other goods
O O
units of X
all other goods
units of X L1
L2
L
L
L2 L1
N/03/3/03
4 In the diagram a consumer's budget line shifts from JK to GH.
good Y
good X
O K H
J G
Which of the following must be correct?
A There has been a change in the consumer's money income.
B There has been a change in the consumer's real income.
C The prices of both goods have changed.
D The price of good Y has increased relative to the price of good X.
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Understanding Economics 34 2-Budget Line
N/04/3/04
5 In the diagram a consumer‟s initial budget line is JK.
O good Y
good X J
G
K H
Assuming no change in the price of X, what could explain a shift in the consumer‟s budget line to GH?
price of good Y consumer‟s money income
A decrease decrease
B decrease increase
C increase decrease
D increase increase
J/05/3/03
6 In the diagram a consumer's budget line shifts from GH to JK.
J G
H K
good X good Y
O
Regardless of any other changes that might occur, what must be correct?
A There has been an increase in the consumer's money income.
B There has been an increase in the consumer's real income.
C There has been an equal proportionate increase in the price of X and Y.
D There has been an equal proportionate decrease in the price of X and Y.
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Understanding Economics 35 2-Budget Line
N/05/3/03
7 In the diagram a consumer's budget line shifts from GH to JK.
G J
H K
good Y
good X O
What must be true?
A The prices of both goods have changed.
B There has been no change in the consumer‟s real income.
C There has been no change in the consumer‟s money income.
D The price of good Y has increased relative to the price of good X.
J/06/3/02
8 In the diagram a consumer's budget line shifts from JK to GH.
G J
O K H
good Y
good X
What can definitely be deduced from the diagram?
A There has been an increase in the consumer's money income.
B There has been a reduction in the price of both X and Y.
C There has been no change in the price of X or Y.
D There has been no change in the price of X relative to the price of Y.
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Understanding Economics 36 2-Budget Line
J/07/3/03
9 In the diagram a consumer's budget line shifts from JK to JH.
J
K H
O good Y
good X What can definitely be concluded from the diagram?
A There has been no change in the price of good Y.
B There has been a reduction in the price of good X.
C There has been an increase in the consumer's money income.
D There has been an increase in the consumer's real income.
J/08/3/03
10 In the diagram a consumer‟s initial budget line is JK.
O K H
J G
quantity of good Y
quantity of good X
Assuming no change in the price of Y, what could explain a shift in the consumer‟s budget line to GH?
price of good X consumer‟s money income
A decrease decrease
B decrease increase
C increase decrease
D increase increase
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Understanding Economics 37 2-Budget Line
N/08/3/03
11 In the diagram a consumer' s budget line shifts from GH to JK.
J G
H K
good X good Y
O
Regardless of any other changes that might occur, what must be correct?
A There has been an equal proportionate increase in the price of X and Y.
B There has been an equal proportionate decrease in the price of X and Y.
C There has been an increase in the consumer's money income.
D There has been an increase in the consumer's real income.
J/09/3/03
12 In the diagram a consumer‟s budget line shifts from JK to GH.
O K H
J G
quantity of good Y
quantity of good X Which statement must be correct?
A There has been an increase in the consumer‟s money income.
B There has been a decrease in the consumer‟s real income.
C Good Y has become relatively more expensive.
D The price of good X has increased.
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Understanding Economics 38 2-Budget Line
N/09/3/02
13 In the diagram, an individual initially chooses combination N on budget line LM.
An increase in his money income accompanied by an increase in the price of good Y causes his budget line to shift to RS, and he now chooses combination T.
O
good X good Y
M S
R L
N T
How does this affect his economic welfare?
A He is definitely better off because his money income has increased.
B He is definitely worse off because he has to pay more for good Y.
C He is better off since combination T, which he now chooses, was not previously available to him.
D He is worse off since combinations of X and Y along LN are no longer available to him.
J/10/3/02
14 In the diagram a consumer‟s budget line shifts from GH to JK.
good Y
good X
O K H
J G
Which statement must be correct?
A The price of good X has increased relative to the price of good Y.
B The prices of both goods have fallen.
C There has been an increase in the consumer‟s real income.
D There has been an increase in the consumer‟s money income.
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Understanding Economics 39 2-Budget Line
N/10/3/03
15 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with his present income.
O R
S quantity of X
M quantity N
of Y
The consumer's original equilibrium is at M.
What could explain a change in his equilibrium position to N?
A a change in his tastes
B a decrease in the price of X and a bigger percentage increase in the price of Y C an increase in the price of X and an increase in his income
D equal percentage increases in his income and in both prices J/11/32/02
16 In the diagram, a consumer‟s initial budget line is JK.
O good Y
good X G
J
H K
Assuming no change in the price of X, what could explain a shift in the onsumer‟s budget line to GH?
price of good Y consumer‟s money income A
B C D
decrease decrease increase increase
decrease increase decrease
increase
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Understanding Economics 40 2-Budget Line
J/12/32/3
17 The curve GH in the diagram is a consumer‟s initial budget line.
G J
H K
good Y
good X O
Which combination could cause the budget line to shift to JK?
price of good X
consumers‟
money income A
B C D
decrease decrease increase increase
decrease increase decrease
increase N/12/32/03
18 In the diagram a consumer's budget line shifts from JK to JH.
J
K H
O good Y
good X What can definitely be concluded from the diagram?
A There has been a decrease in the price of good Y.
B There has been a decrease in the consumer's money income.
C There has been an increase in the consumer‟s real income.
D There has been no change in the price of good X.
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Understanding Economics 41 2-Budget Line
J/13/32/03
19 In the diagram a consumer‟s budget line shifts from GH to JK.
O K H
J G
quantity of good Y
quantity of good X Which statement must be correct?
A The price of good Y has fallen relative to the price of good X.
B There has been a decrease in the price of good Y.
C There has been an increase in the price of good X.
D There has been an increase in the consumer‟s real income.
N/13/32/03
20 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with her present income.
quantity of Y
quantity of X O
R
N M
S The consumer‟s original equilibrium is at M.
What could explain a subsequent change in her equilibrium position to N?
A a change in her tastes
B an increase in the price of X and a fall in the price of Y
C an increase in the price of X and a smaller percentage increase in the price of Y D equal percentage increases in her income and in both prices
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Understanding Economics 42 2-Budget Line
J/14/32/02
21 In the diagram, a consumer‟s initial budget line is JK.
O H K
G J
quantity of good Y
Assuming no change in the price of X, what could explain a shift in the consumer‟s budget line to GH?
price of good Y
consumer’s money income
A decrease decrease
B decrease increase
C increase decrease
D increase increase
N/14/32/03
22 In the diagram a consumer‟s budget line shifts from GH to JK.
Which statement must be correct?
A There has been an increase in the consumer‟s real income.
B There has been a decrease in the consumer‟s real income.
C Good Y has become relatively more expensive.
D Good X has become relatively more expensive.
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Understanding Economics 43 2-Budget Line
N/15/32/03
23 In the diagram, PQ is a consumer‟s original budget line.
0 10 20
16 12 quantity of Y
quantity of X P
R
Q S
The consumer‟s income increases from $80 to $120 and, at the same time, the prices of X and Y change.
If the consumer‟s budget line is now RS, what are the new prices of X and Y?
price of X ($) price of Y ( $)
A 4 12
B 6 10
C 10 8
D 12 6
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Understanding Economics 44 3- Normal, Inferior and Giffen Goods