16. If income increases, then the A. Budget line rotates counter-clockwise B. Bu
ID: 1194848 • Letter: 1
Question
16. If income increases, then the
A. Budget line rotates counter-clockwise
B. Budget line rotates clockwise
C. Budget line shifts to the right
D. Opportunity set contracts
17. A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?
A. Increase the vertical intercept
B. Decrease the horizontal intercept
C. Parallel outward shift of the line
D. Parallel inward shift of the line
18. What are the advantages to a firm of selling gift certificates?
A. Greater quantity sold if your good is a normal good
B. Greater quantity if your good is an inferior good
C. Reduced strain on the refund department and greater quantity sold if your good is a normal good
D. Reduced strain on the refund department and greater quantity if your good is an inferior good
19. Suppose that consumers' preferences are well behaved in that properties 4-1-4-4 are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y increases. Then, which of the following effect is known with certainty.
A. The income and substitution effect reinforce one another leading to an overall increase the consumption of good X
B. The income and substitution effect reinforce one another leading to an overall decrease the consumption of good X
C. There will be an indeterminate effect on the consumption of good X
D. The income and substitution effect will reinforce one another leading to an overall increase in the consumption of good Y
Explanation / Answer
16. The correct option is C. The budget line is always plotted for a particular level of income and prices. When the income increases, the budget of the consumer also increases and the curve shifts out to right.
17. The correct option is B.
Let the price of good Y is on the horizontal axis and that the price of good X is on vertical axis. Now if the price of Y falls, the budget line will rotate inwards and the horizontal intercept would reduce.
18. The correct option is D.
The gifts exchanged with each other often do not match the wants and desires of the consumers. Although people prefer cash gifts, still the use of in-kind gift cards are also there. So gift certificates help the refund department in exchange process where people can get the items exchanged of their choice. Also if you sell an inferior good, offering to sell gift certificates to those looking for gifts may result in a greater quantity sold than if customers resorted to giving cash gifts.
19. The correct answer is option A.
When X and Y are normal goods, and the price of Y increases, substitution effect will make the purchase of good X more. However, income has fallen due to rise in price, which will decrease the consumption of good Y, and increase that of good X.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.