Eco09L1

  • 1

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    The budget line ____________________________.

    shows the income a household needs to be able to buy goods and services
    defines the limits to a household's consumption
    illustrates a household's preferences
    defines a household's consumption when prices change

  • 2

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    Real income is ____________________.

    the maximum amount of goods and services that a household can afford
    equal to money income minus taxes
    equal to money income plus benefits minus taxes
    equal to the income earned legally

  • 3

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    The magnitude of the slope of the budget line is equal to the _______ or _______ of the good plotted on the _________ in terms of the other good.

    relative price; opportunity cost; x-axis
    relative price; total cost; y-axis
    relative price; marginal cost; y-axis
    price; opportunity cost; x-axis

  • 4

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    An indifference curve shows combinations of goods _______________________.

    which the consumer prefers equally
    that are inside or on the budget line
    that are affordable
    that have the same relative price

  • 5

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    The marginal rate of substitution is equal to the ________________________.

    magnitude of the slope of the indifference curve
    relative price
    marginal cost of each good
    slope of the budget line

  • 6

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    As a consumer moves down along an indifference curve, the consumer's ________________________.

    marginal rate of substitution diminishes
    real income decreases
    marginal utility diminishes
    marginal returns diminish

  • 7

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    For goods and services that are perfect complements, the consumer's indifference curves are ____________ lines.

    L-shaped
    straight
    curved
    negatively sloped

  • 8

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    The price effect is the effect of __________ on the quantity of the good _______.

    a change in the price; consumed
    an increase in the price; consumed
    a change of the price; supplied
    a decrease in the price; demanded

  • 9

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    The effect of a change in income on the quantity of the good consumed is called the _________________.

    income effect
    budget effect
    substitution effect
    real income effect

  • 10

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    The effect of a change in the price of a good or service on the quantities consumed when the consumer remains indifferent between the original and new combination of goods consumed is the _______________.

    substitution effect
    real income effect
    income effect
    price effect

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