Budget Constraint Quiz

What is a budget constraint?

• a) The amount of money a consumer is required to spend

• b) The limited income that restricts a consumer's ability to purchase goods

• c) The total number of goods a consumer can purchase

• d) The difference between a consumer's income and expenditure

Which equation represents the budget constraint?

• a) 𝑝1𝑥1+𝑝2𝑥2=𝑚

• b) 𝑝1𝑥1+𝑝2𝑥2≥𝑚

• c) 𝑝1𝑥1+𝑝2𝑥2≤𝑚

• d) 𝑝1𝑥1+𝑝2𝑥2=𝑝1+𝑝2

If the price of good 1 increases, what happens to the budget line?

• a) It shifts outward

• b) It becomes flatter

• c) It rotates inward

• d) It becomes steeper

What is the effect of an increase in income on the budget line?

• a) The slope of the budget line changes

• b) The budget line shifts outward

• c) The budget line shifts inward

• d) The budget line becomes vertical

What does the slope of the budget line represent?

• a) The rate at which the consumer can trade one good for another

• b) The total amount of goods a consumer can purchase

• c) The income level of the consumer

• d) The prices of the goods are equal

If the price of good 2 decreases, what happens to the budget line?

• a) It becomes steeper

• b) It rotates outward

• c) It shifts inward

• d) It becomes flatter

What is the opportunity cost of consuming one more unit of good 1?

• a) The price of good 1

• b) The amount of good 2 that must be given up

• c) The price of good 2

• d) The total income

If a consumer's income is doubled and prices of goods are unchanged, what happens to the budget line?

• a) It rotates inward

• b) It shifts outward, parallel to the original line

• c) It becomes steeper

• d) It shifts inward, parallel to the original line

What does a point inside the budget line represent?

• An affordable combination of goods

• An unaffordable combination of goods

• The maximum combination of goods

• The combination of goods where the consumer spends all income

What does a point on the budget line represent?

• A combination of goods that the consumer cannot afford

• A combination of goods where all income is spent

• A combination of goods where income is partially spent

• A combination of goods outside the consumer's budget