Economics Quiz (2)

What does EQUILIBRIUM refer to in consumer choice?

• The consumer always chooses the cheapest option.

• The consumer has many options to choose from.

• The consumer prefers luxury goods over necessities.

• The consumer has no incentive to change to a different affordable bundle.

When is a consumer in equilibrium?

• When they choose the least preferred bundle.

• When they only buy one type of good.

• When they choose the most preferred affordable bundle.

• When they have unlimited income.

What happens to the budget line when income increases?

• It shifts inward.

• It becomes vertical.

• It shifts outward.

• It remains the same.

If both goods are normal goods, what happens to consumption when income increases?

• Consumption remains unchanged.

• Consumption of one good decreases.

• Consumption of both goods increases.

• Consumption of both goods decreases.

What effect does a price decrease in good X have on the budget line?

• It has no effect.

• It flattens the budget line.

• It makes the budget line vertical.

• It steepens the budget line.

What is the Substitution Effect?

• It occurs when a price change alters the relative price of two goods.

• It reflects a decrease in real income.

• It is the increase in consumption of both goods.

• It is the movement from one indifference curve to another.

What does the Income Effect result from?

• A price change that alters real purchasing power.

• A decrease in the number of goods available.

• A change in the consumer's preferences.

• An increase in the price of all goods.

What is a key advantage of spot exchange?

• It allows for long-term contracts.

• It requires formal agreements.

• It enables specialization in production.

• It guarantees the lowest price.

What is a disadvantage of contracts?

• They can be costly and time-consuming.

• They always cover all future uncertainties.

• They are easy to write.

• They eliminate the need for negotiation.

What does vertical integration involve?

• Signing contracts with external suppliers.

• Using spot exchanges for all transactions.

• Producing inputs internally within the firm.

• Purchasing inputs from multiple suppliers.