Understanding Budget Lines

What is the definition of a budget line?

• A budget line shows the maximum quantity of two goods that can be purchased with a given budget.

• A budget line is a graph showing the price of goods over time.

• A budget line indicates the total income of a household.

• A budget line represents the cost of a single good only.

What factors can affect the position of a budget line?

• Cultural influences on savings

• Government regulations on spending

• Changes in income, prices of goods, and consumer preferences.

• Changes in weather patterns

How does an increase in income shift the budget line?

• The budget line shifts inward, indicating decreased purchasing power.

• The budget line shifts vertically, affecting only one good's price.

• The budget line remains unchanged, as income does not affect it.

• The budget line shifts outward, indicating increased purchasing power.

What does a budget line indicate about consumer choice?

• A budget line indicates the trade-offs and constraints in consumer choice based on income and prices.

• A budget line shows the total utility a consumer can achieve.

• A budget line represents the consumer's preferences for different goods.

• A budget line indicates the maximum quantity of goods a consumer can buy regardless of income.

How does the price of goods influence the slope of the budget line?

• Higher prices always lead to a steeper budget line regardless of the goods.

• The price of goods has no effect on the budget line.

• The slope of the budget line is determined solely by income.

• The price of goods influences the slope of the budget line by changing the rate at which one good can be substituted for another.

What happens to the budget line if the price of one good decreases?

• The budget line rotates outward from the axis of the good that decreased in price.

• The budget line remains unchanged regardless of price changes.

• The budget line shifts inward from the axis of the good that decreased in price.

• The budget line rotates inward from the axis of the good that decreased in price.

How can a budget line be used to illustrate opportunity cost?

• A budget line represents the fixed costs associated with purchasing goods.

• A budget line illustrates opportunity cost by showing the trade-off between two goods, indicating how much of one good must be sacrificed to obtain more of the other.

• A budget line shows the total income available without any trade-offs.

• A budget line indicates the maximum quantity of goods that can be purchased without any constraints.

What does a steeper slope of the budget line signify?

• A decrease in the quantity of goods available.

• A lower opportunity cost of one good.

• A higher opportunity cost of one good.

• An increase in income level.