In 2012, the Associated Press examined the effect higher gas prices on consumption of other
goods. It said that the increase in the price of gasoline has decreased the quantity of other goods,
such as food, that people consume. (Source: Associated Press, September 28, 2012)
66) If consumers spend their income either on gasoline or food, then an increase in the price of
gasoline rotates the budget line
A) inward along the “food” axis.
B) outward along the “food” axis.
C) inward along the “gasoline” axis.
D) outward along the “gasoline” axis.
67) If the price of gasoline increases and the price of food remains the same, then real income
measured in terms of
A) gasoline increases.
B) gasoline decreases.
C) food increases.
D) food decreases.
68) The price of one good divided by the price of another good is a
A) money price.
B) relative price.
C) budget constraint.
D) divisible good.
69) A relative price is the
A) price of one good divided by the price of another good.
B) same as opportunity cost.
C) price of a given good divided by income.
D) Both answers A and B are correct.
70) If the relative price of pizza in terms of movies is 3, this means that
A) the opportunity cost of a pizza is 3 movies.
B) 3 pizzas can be traded for 9 movies.
C) in terms of the dollars that must be spent to buy the product, pizza is more expensive than
movies.
D) All of the above answers are correct.
71) Suppose the price of coffee is $3 each, the price of bagels is $2 each and a person’s budget is
$40. The relative price of coffee is
A) 1.5 bagels.
B) 2/3 of a bagel.
C) 13.33 bagels.
D) 20 bagels.
72) Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of
cake is $2.00 per slice. The relative price of cookies in terms of cake is
A) $2.00 per cookie.
B) $4.00 per cookie.
C) 1/2 slice of cake per cookie.
D) 2 slices of cake per cookie.
73) Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of
cake is $2.00 per slice. The relative price of cake in terms of cookies is
A) 1/2 pound of cookies per cake.
B) 2 pounds of cookies per cake.
C) 1/2 slice of cake per cookie.
D) 2 slices of cake per cookie.
74) Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice,
and the price of milk is $2 per quart. The relative price of milk is
A) 2 slices of pizza per quart.
B) 0.5 slices of pizza per quart.
C) $2 per quart.
D) 0.5 quarts per slice of pizza.
75) Suppose that the price of a bag of jellybeans is $6, and the price of a bottle of cola is $2. The
relative price of cola is
A) 3 bags of jellybeans per bottle of cola.
B) 2 bags of jellybeans per bottle of cola.
C) 1/3 bag of jellybeans per bottle of cola.
D) $2.
76) When the price of only one good rises, the relative price of that good
A) falls.
B) rises.
C) does not change.
D) rises if it is a normal good and falls if it is an inferior good.
77) Suppose that initially the price of a bag of jellybeans is $6, and the price of a bottle of cola is
$2. If the price of a bottle of cola increases, then the relative price of jellybeans
A) increases.
B) decreases.
C) stays the same, but the relative price of cola increases.
D) stays the same, but the relative price of cola decreases.
78) If the price of peanuts increases by 10 percent and the price of potato chips does not change,
then the relative price of peanuts with respect to potato chips will ________ and the relative
price of potato chips with respect to peanuts will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
79) Real income is equal to ________ and a relative price is given by ________.
A) the dollar amount of income divided by the dollar price of a good; the dollar price of one
good divided by the dollar price of the good whose relative price is being calculated
B) the dollar price of one good divided by the dollar price of the good whose relative price is
being calculated; the dollar amount of income divided by the dollar price of a good
C) The dollar price of one good divided by the dollar price of another good; the dollar price of
one good divided by the dollar price of the good whose relative price is being calculated
D) the dollar amount of income; real income divided by the dollar amount of income
80) The magnitude of the slope of the budget line is determined by
A) the marginal rate of substitution.
B) the level of income.
C) the consumer’s preferences for the goods.
D) relative prices.
81) The magnitude of the slope of the budget line is the ratio of
A) a price to its quantity.
B) a quantity to its price.
C) two prices.
D) two marginal rates of substitution.
82) The magnitude of the slope of the budget line measures the
A) opportunity cost of the good on the horizontal axis in terms of the good on the vertical axis.
B) opportunity cost of the good on the vertical axis in terms of the good on the horizontal axis.
C) price elasticity of demand.
D) price elasticity of supply.
83) 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.
A) relative price; marginal cost; y-axis
B) relative price; total cost; y-axis
C) relative price; opportunity cost; x-axis
D) price; opportunity cost; x-axis
84) Nick consumes two goods, chips and lemonade. Located on the x-axis is the quantity of chips
and on the y-axis is the quantity of lemonade. The magnitude of the slope of the budget line
equals the
A) price of lemonade.
B) price of chips.
C) price of chips/price of lemonade.
D) price of lemonade/price of chips.
85) Movies are $10 a ticket, and DVD rentals are $5 a DVD. With movies on the vertical axis,
the magnitude of the slope of the budget line is
A) 1/2.
B) 2.
C) 5.
D) 10.
86) If all prices rise by 5 percent and money income remains constant, the new budget line will
have
A) a steeper slope.
B) a flatter slope.
C) a positive slope.
D) the same slope.
87) If all prices fall by 5 percent and money income remains constant, the new budget line will
have
A) a positive slope.
B) the same slope.
C) a steeper slope.
D) a flatter slope.
88) Jake spends $200 on fried chickens and Pepsi. The price of a fried chicken is $5 and Pepsi is
$2.50 per bottle. With the quantity of Pepsi being measured along the vertical axis, the slope of
Jake’s budget line is ________ per fried chicken.
A) 0.5 of a Pepsi
B) -0.5 of a Pepsi
C) 2 Pepsis
D) -2 Pepsis
89) Ron spends $150 on movie tickets and pizza. The price of a pizza is $10 and a movie ticket
is $7.50. With the quantity of movies measured along the vertical axis, the slope of Ron’s budget
line (with movies on the vertical axis) is ________ per pizza
A) 1.33 movies
B) -1.33 movies
C) 0.75 of a movie
D) -0.75 of a movie
90) If the price of the good measured on the horizontal axis falls, a consumer’s budget line
A) becomes flatter.
B) becomes steeper.
C) shifts rightward and its slope does not change.
D) shifts leftward and its slope does not change.
91) Junkfood Jill spends all of her income on jellybeans and cola. Suppose that Jill’s income is
$30, the price of a bag of jellybeans is $6, and the price of a bottle of cola is $2. If bags of
jellybeans are graphed along the vertical axis and bottles of cola are graphed along the horizontal
axis, what is the slope of the budget line?
A) 3
B) -3
C) 1/3
D) -1/3
Case
Money
income
(dollars)
Price of a
pizza (dollars)
Price of a
hamburger
(dollars)
A
100
20
2
B
50
10
5
C
25
5
4
92) In the table above, in terms of units of pizza, real income is
A) lower in case A than in cases B and C.
B) lower in case B than in cases A and C.
C) lower in case C than in cases A and B.
D) equal in all three cases.
93) In the table above, in terms of units of hamburgers, real income is
A) lower in case A than in cases B and C.
B) lower in case B than in cases A and C.
C) lower in case C than in cases A and B.
D) equal in all three cases.
94) In the table above, which case has the lowest relative price for a hamburger?
A) case A
B) case B
C) case C
D) All three cases have an equal relative price for a hamburger.
95) The above figure gives your budget line between CDs and magazines. Which combination of
CDs and magazines are affordable?
A) combination a
B) combinations a, b, c, and d
C) combination c only
D) combinations b, c, and d
96) The above figure gives your budget line between CDs and magazines. Which of the
following changes would NOT allow you to buy more CDs?
A) a decrease in the relative price of CDs
B) an increase in income
C) a decrease in the price of magazines with no change in the price of CDs
D) None of the above answers is correct because all of the above changes allow you to buy more
CDs.
97) The above figure gives your budget line between CDs and magazines. If the price of a
magazine increased, then the budget line
A) shifts outward and the slope does not change.
B) rotates inward with no change in the horizontal intercept.
C) rotates inward with no change in the vertical intercept.
D) rotates outward with no change in the vertical axis.
98) Given the budget line in the above figure, which of the following combinations of pizza and
milk are affordable?
A) 0 pizzas, 10 gallons of milk
B) 2 pizzas, 6 gallons of milk
C) 4 pizzas, 1 gallon of milk
D) All of the above combinations are affordable.
99) Given the budget line in the above figure, what is the household’s real income in terms of
pizzas per month?
A) 5 pizzas per month
B) 4 pizzas per month
C) 3 pizzas per month
D) All of above represent the household’s real income.
100) Given the budget line in the above figure, what is the relative price of pizza?
A) 10 gallons of milk per pizza
B) 6 gallons of milk per pizza
C) 4 gallons of milk per pizza
D) 2 gallons of milk per pizza
101) The above figure shows Katie’s consumption possibilities. The relative price of a movie
ticket is
A) 1 restaurant meal.
B) 0.25 restaurant meals.
C) 4 restaurant meals.
D) 2 restaurant meals.
102) The above figure shows Katie’s consumption possibilities. The relative price of a restaurant
meal is
A) 1 movie ticket.
B) 0.25 movie tickets.
C) 4 movie tickets.
D) 2 movie tickets.
103) The figure above shows Ronald’s budget line. He has a weekly income of $20 and he
spends it on hot dogs and hamburgers. The relative price of a hamburger is ________.
A) 1/2 hot dog
B) 5 hot dogs
C) $20
D) 2 hot dogs
104) The figure above shows Ronald’s budget line. He has a weekly income of $20, which he
spends on hotdogs and hamburgers. Ronald’s real income in terms of hamburgers ________.
A) depends on the quantity of hamburgers consumed
B) depends on the quantity of hotdogs consumed
C) is $20
D) is 10 hamburgers
105) The figure above shows Ronald’s budget line. He has a weekly income of $20, which he
spends on hotdogs and hamburgers. Now Ronald’s income decreases to $10 per week and the
price of a hotdog doubles. Ronald’s budget line becomes ________ and ________.
A) flatter; shifts rightward
B) flatter; does not shift
C) steeper; shifts rightward
D) steeper; shifts leftward
106) Suppose Sam plans to buy only popcorn and soda. He has $40 to spend per week. A change
in which of the following variables will change Sam’s consumption possibilities?
I. price of popcorn
II. income
III. preferences
IV. utility
A) II only
B) I and II
C) I, II and III
D) III and IV
107) Joe has $50, which he spends on movies and pizza. If the price of a pizza falls, Joe can
A) consume more of both goods.
B) consume more pizza only if he gives up some movies.
C) consume more movies only if he gives up some pizza.
D) consume more pizza only.
108) Given the budget line in the figure above, the combination of chips that is NOT affordable
is
A) a.
B) b.
C) c.
D) d.
109) In the figure above, real income in terms of bags of corn chips is shown by point
A) a.
B) b.
C) c.
D) d.
110) In the figure above, a decrease in the price of a bag of potato chips would result in the
budget line
A) making a parallel shift toward point a.
B) making a parallel shift toward point c.
C) becoming flatter.
D) becoming steeper.
111) In the figure above, an increase in the price of a bag of potato chips would result in the
budget line
A) making a parallel shift toward point a.
B) making a parallel shift toward point c.
C) becoming flatter.
D) becoming steeper.
112) In the figure above, an increase in income would result in the budget line
A) making a parallel shift toward point a.
B) making a parallel shift toward point c.
C) becoming flatter.
D) becoming steeper.
113) Sharmila has a budget line for DVDs and books. DVDs are on the vertical axis and books
on the horizontal. Her budget line becomes steeper as
A) the price of a DVD falls.
B) the price of a DVD rises.
C) her income decreases.
D) her income increases.
114) Inga’s graph of her budget line has apples per week on the vertical axis and loaves of bread
per week on the horizontal. A fall in the price of an apple shifts the
A) horizontal intercept leftward.
B) horizontal intercept rightward.
C) vertical intercept downward.
D) vertical intercept upward.
115) A budget line is drawn with automobiles on the vertical axis and boats on the horizontal.
Imposing a tax on boats that boosts the price of a boat makes the
A) indifference curves flatter.
B) indifference curves steeper.
C) budget line flatter.
D) budget line steeper.
116) In the above figure, the budget line would rotate in the direction indicated as a result of a
A) rise in the price of a book.
B) fall in the price of a book.
C) rise in the price of a movie.
D) decrease in income.
117) When your income increases
A) your budget line shifts rightward and its slope does not change.
B) your budget line shifts leftward and its slope does not change.
C) the slope of your budget line increases.
D) the slope of your budget line decreases.
118) An increase in a consumer’s income creates a
A) rightward parallel shift of the budget line.
B) leftward parallel shift of the budget line.
C) rightward rotation of the budget line, so that the budget line becomes steeper.
D) leftward rotation of the budget line, so that the budget line becomes steeper.
119) If an individual’s income increases
A) the person’s indifference curves shift outward in a parallel manner.
B) the person’s budget line shifts outward in a parallel manner.
C) there will be no impact on the individual’s budget line or indifference curves.
D) None of the above answers is correct.
120) In the above figure, a shift in the budget line in the direction indicated would occur as a
result of
A) a decrease in money income.
B) an increase in money income.
C) a fall in the price of a movie.
D) a rise in the price of movie.
121) In the above figure, if the price of milk rises, the budget line
A) rotates outward and the slope becomes steeper.
B) shifts inward and its slope does not change.
C) rotates inward and the slope becomes steeper.
D) rotates inward and the slope becomes more shallow.
122) In the above figure, if the price of pizza falls, the budget line
A) rotates outward and becomes steeper.
B) shifts leftward and its slope does not change.
C) shifts rightward and its slope does not change.
D) rotates inward and becomes flatter.
123) In the above figure if money income increases, the budget line
A) shifts outward and its slope does not change.
B) shifts inward and its slope does not change.
C) rotates outward and becomes steeper.
D) rotates outward and becomes more shallow.
124) In the above figure, the budget line would rotate in the direction indicated as a result of a
A) rise in the price of a book.
B) decrease in income.
C) rise in the price of a movie.
D) fall in the price of a movie.
125) If money income increases, a consumer’s budget line
A) becomes flatter.
B) becomes steeper.
C) shifts rightward and its slope does not change.
D) shifts leftward and its slope does not change.