Consumer Theory and Budget Line

Exam
Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Guy has an income (Y) of $50 with which he can purchase DVDs (D) at $10 each and haircuts (H) at
$20 each. Which one of the following represents Guy 's budget line?
A) 50 = 10QD + 20Q H
B) 50 = QD + QH
C) 20Y = QD + 10Q H
D) Y = 10QD - 20Q H
E) Y = 50 + QD + QH

1)

2) David has an income of $30 to buy movie tickets and bus tickets. The price of a movie ticket is $6 and the price of a bus ticket is $2. What is David 's real income?
A) $38
B) $30
C) $32
D) 5 movie tickets or 15 bus tickets
E) 15 movie tickets or 5 bus tickets

2)

3) The magnitude of the slope of the budget line is the
A) absolute price of the good measured on the horizontal axis.
B) relative price of the good measured on the vertical axis.
C) price of the good measured on the vertical axis.
D) relative price of the good measured on the horizontal axis.
E) real price of the good measured on the vertical axis.

3)

4) If the price of the good measured on the horizontal axis increases, the budget line
A) shifts rightward and parallel to the original budget line.
B) becomes steeper.
C) becomes flatter.
D) shifts leftward and becomes steeper.
E) shifts leftward and parallel to the original budget line.

4)

1

Use the figure below to answer the following questions.

Figure 9.1.2

5) Refer to Figure 9.1.2. Which budget line shows the greatest real income in terms of compact discs?
A) AD
B) BD
C) CD
D) Real income is equal for all three budget lines.
E) Cannot be determined without studying the indifference curves.

5)

6) Larry consumes only beer (B) and chips (C). The magnitude of the slope of his budget line (with beer measured on the vertical axis) is
A) Y/PB.
B) PC × PB.
C) PC/PB.
D) PC/Y.
E) Y/PC.

6)

7) The magnitude of the slope of an indifference curve is
A) the marginal