Topic Questions (MCQ – HARD): Indifference curves and budget lines – 3auk

In the diagram, a consumer's budget line shifts from GH to JK. Based on this information, what must be true?

There has been an increase in the consumer's monetary earnings.

There has been an increase in the consumer's real earnings.

There has been an equal proportional rise in the prices of both goods X and Y.

There has been an equal proportional decline in the prices of both goods X and Y.

A consumer has a given income and can buy two goods, A and B. What will result in the consumer's budget line shifting in parallel to the right?

A

B

C

D

What is not kept unchanged during the computation of the substitution effect of a modification in the price of a product?

the amount of money the consumer spends on other goods

the consumer's monetary income

the consumer's preferences

the prices of other goods

The diagram illustrates a consumer's indifference curves (IC) for goods A and B, along with the consumer's budget lines.

What could account for the shift from point X to point Z on the diagram?

A decrease in the price of A, assuming A is a Giffen good.

A decrease in the price of A, assuming A is an inferior good.

A decrease in the price of A, assuming B is a normal good.

A decrease in the price of A, assuming A is a normal good.

The table presents the substitution effect and income effect for a Giffen good and an inferior good in response to changes in the price of the good.

Which combination of effects is accurate?

A

B

C

D