EC270: Microeconomic Theory I Chapters 2: The Budget Constraint Practice Questions & Answers

EC270: Microeconomic Theory I Chapters 2:
The Budget Constraint
Practice Questions &
Answers
©L. McLeod

Fall 2024



1 Multiple Choice Questions

1. (b)
2. (a)
3. (b)

4. (b)
5. (c)
6. (b)
7. (e)
8. (c)




1

, Practice Questions (Chapters 2: The Budget Constraint) EC270: Microeconomic Theory I




1.1 Economic Concepts to Remember

Budget Constraint Equation : the Budget Constraint can be written as p1x1 + p2x2 = m, where:

vertical intercept horizontal

intercept

slope ⇒−



Opportunity Cost : the cost of consuming good 1 measured in terms of the value of the next best alternative

forgone (consuming good 2). The slope of the budget line measures the opportunity cost of
consuming x1 as the opportunity cost of an extra unit of units of x2. Therefore, the opportunity
cost of an extra unit of units of x1.




©L. McLeod, Fall 2024