1.) Which of the graphs in the figure reflects a decrease in the price of good Y

Question

1.) Which of the graphs in the figure reflects a decrease in the price of good Y only?

graph a

graph b

graph c

graph d

2.) As the consumer moves from point A to B to C to D, the consumer’s marginal rate of substitution

decreases.

remains constant.

first increases, then decreases.

increases.

For 3.) I put D. all the above and it was incorrect..

3.) On a graph we draw a consumer’s budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

an apple costs twice as much as a light bulb.

the opportunity cost of a light bulb is 2 apples.

the opportunity cost of an apple is one-half of a light bulb.

All of the above are correct.

a.

graph a

b.

graph b

c.

graph c

d.

graph d

In each case, the budget constraint moves from BC-1 to BC-2. BC-1 BC-2 BC-2 BC-1 BC-2 BC-1 BC-1 BC-2

Explanation / Answer

1) graph D represent shift in budget line because of decrease in price of Y, which shift the Y intercept outside and X intercept remains same.

2)A. MrS decreases due to Law of Diminishing marginal utility

3)price of apple/price of light bulb=-2

Thus apple cost is twice as much as a light bulb. Ans is A

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