With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line. True or false?

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2 Jun 2021

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True or False. If False explain why it's false.

1. If all prices are doubled an money income is the left the same, the budget set does not change because the relative prices do not change.

2. A decrease in income pivots the budget line around the bundle initially consumed.

3. If preferences are well-behaved, then for any commodity bundle (x1,x2), the set of commodity bundles that are worse than (x1,x2) is a convex set.

4. The marginal rate of substitution measures the distance betwee one indifference curve and the next one.

5. If someone has the utility function U= 2min(x, y), then x and y are perfect complements for that person.

6. At the boundary optimum, a consumers indifference curve must be tangent to her budget line.

7. If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

8. An Engel curve is a demand curve with the vertical and horizontal axes reversed.

9. An inferior good is less durable than a normal good.

10. When other variables are held fixed, the demand for a Giffen good rises when income increase.

The shift of the budget line from AB to CD in the figure is consistent with:

A) decreases in the prices of both M and N.
B) an increase in the price of M and a decrease in the price of N.
C) a decrease in money income.
D) an increase in money income.

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

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With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line. True or false?

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