The market 3 1 48 the quantity demanded in the market

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Unformatted text preview: ed in the market falls by 4 Q24. A change in _____ changes the slope of the budget line; a change in ____ changes the position of the budget line. a) b) c) d) e) Real income; the relative price The relative price; real income Preferences; real income The relative price; preferences Both a) and c) are possible Solution: b) The relative price; real income PxQx + PyQy = I (income) Qy = I/Py – (Px/Py)Qx Change in the relative price (Px/Py) changes the slope; change in real income does not affect the slope, bur shifts the budget line. Page 15 of 33 ©Prep101 www.prep101.com/freestuff Q25. Sandra consumes apples (measured on the x-axis) and peaches (measured on the yaxis). Suppose the price of apples increases 2-fold and the price of peaches remain unchanged. If Sandra’s income increases 2-fold, her budget line will a) b) c) d) e) Shift left but not change slope Not shift but become flatter Shift right but not change slope Shift right and become steeper Shift right and become flatter Solution: d) Shift right and become steeper PxQx + PyQy = I (income) Budget line = Qy = I/Py – (Px/Py)Qx Income and price of apples increase 2-fold Qy = (2*I) / Py – (2*Px/Py)*Qx Qy = 2* (I/Py)– 2*(Px/Py)Qx the BL becomes steeper and shifts right. Q26. Suppose Firm A can produce a uni...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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