CHAPTER 2: Budget Constraint
TRUE/FALSE
1. If there are two goods with positive prices and the price of one good is reduced, while income and
other prices remain constant, then the size of the budget set is reduced.
ANS: F DIF: 1
2. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the
price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is −p2/p1.
ANS: F DIF: 1
3. If all prices are doubled and money income is left the same, the budget set does not change
because relative prices do not change.
ANS: F DIF: 1
4. If there are two goods and if one good has a negative price and the other has a positive price, then
the slope of the budget line will be positive.
ANS: T DIF: 1
5. If all prices double and income triples, then the budget line will become steeper.
ANS: F DIF: 1
6. If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price
of good 1 will not change the horizontal intercept of the budget line.
ANS: F DIF: 1
, 7. If there are two goods and the prices of both goods rise, then the budget line must become
steeper.
ANS: F DIF: 1
8. There are two goods. You know how much of good 1 a consumer can afford if she spends all of
her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw
the consumer’s budget line without any more information.
ANS: T DIF: 1
9. A consumer prefers more to less of every good. Her income rises, and the price of one of the
goods falls while other prices stay constant. These changes must have made her better off.
ANS: T DIF: 1
10. There are 3 goods. The price of good 1 is −1, the price of good 2 is +1, and the price of good 3 is
+2. It is physically possible for a consumer to consume any commodity bundle with nonnegative
amounts of each good. A consumer who has an income of 10 could afford to consume some
commodity bundles that include 5 units of good 1 and 6 units of good 2.
ANS: T DIF: 2
11. A decrease in income pivots the budget line around the bundle initially consumed.
ANS: F DIF: 1
MULTIPLE CHOICE
1. If she spends all of her income on breadfruits and melons, Natalie can just afford 9 breadfruits
and 10 melons per day. She could also use her entire budget to buy 3 breadfruits and 12 melons
per day. The price of breadfruits is 8 yen each. How much is Natalie’s income per day?
, a. 313 yen
b. 317 yen
c. 309 yen
d. 303 yen
e. None of the above.
ANS: E DIF: 1
2. If she spends all of her income on uglifruits and breadfruits, Maria can just afford 11 uglifruits
and 4 breadfruits per day. She could also use her entire budget to buy 3 uglifruits and 8
breadfruits per day. The price of uglifruits is 6 pesos each. How much is Maria’s income per day?
a. 115 pesos
b. 105 pesos
c. 114 pesos
d. 119 pesos
e. None of the above.
ANS: C DIF: 1
3. Harold lives on Doritos and seafood salads. The price of Doritos is 1 dollar per bag and the price
of seafood salads is 2 dollars each. Harold allows himself to spend no more than 11 dollars a day
on food. He also restricts his consumption to 6,500 calories per day. There are 1,500 calories in a
bag of Doritos and 500 calories in a seafood salad. If he spends his entire money budget each day
and consumes no more calories than his calorie limit, he can consume up to
a. 3 bags of Doritos per day but no more.
b. 1 bag of Doritos per day but no more.
c. 4 seafood salads per day but no more.
d. 4 bags of Doritos per day but no more.
e. None of the above.
, ANS: A DIF: 2
4. Quincy lives on pretzels and seafood salads. The price of pretzels is 1 dollar per bag and the price
of seafood salads is 2 dollars each. Quincy allows himself to spend no more than 14 dollars a day
on food. He also restricts his consumption to 3,400 calories per day. There are 600 calories in a
bag of pretzels and 200 calories in a seafood salad. If he spends his entire money budget each day
and consumes no more calories than his calorie limit, he can consume up to
a. 2 bags of pretzels per day but no more.
b. 5 seafood salads per day but no more.
c. 4 bags of pretzels per day but no more.
d. 5 bags of pretzels per day but no more.
e. None of the above.
ANS: C DIF: 2
5. Clara spends her entire budget and consumes 5 units of x and 13 units of y. The price of x is twice
the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If
she continues to buy 13 units of y, what is the largest number of units of x that she can afford?
a. 10
b. 5
c. 12
d. 14
e. There is not enough information to say.
ANS: A DIF: 1
6. Maria spends her entire budget and consumes 5 units of x and 6 units of y. The price of x is twice
the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If
she continues to buy 6 units of y, what is the largest number of units of x that she can afford?
a. 12
b. 10
TRUE/FALSE
1. If there are two goods with positive prices and the price of one good is reduced, while income and
other prices remain constant, then the size of the budget set is reduced.
ANS: F DIF: 1
2. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the
price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is −p2/p1.
ANS: F DIF: 1
3. If all prices are doubled and money income is left the same, the budget set does not change
because relative prices do not change.
ANS: F DIF: 1
4. If there are two goods and if one good has a negative price and the other has a positive price, then
the slope of the budget line will be positive.
ANS: T DIF: 1
5. If all prices double and income triples, then the budget line will become steeper.
ANS: F DIF: 1
6. If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price
of good 1 will not change the horizontal intercept of the budget line.
ANS: F DIF: 1
, 7. If there are two goods and the prices of both goods rise, then the budget line must become
steeper.
ANS: F DIF: 1
8. There are two goods. You know how much of good 1 a consumer can afford if she spends all of
her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw
the consumer’s budget line without any more information.
ANS: T DIF: 1
9. A consumer prefers more to less of every good. Her income rises, and the price of one of the
goods falls while other prices stay constant. These changes must have made her better off.
ANS: T DIF: 1
10. There are 3 goods. The price of good 1 is −1, the price of good 2 is +1, and the price of good 3 is
+2. It is physically possible for a consumer to consume any commodity bundle with nonnegative
amounts of each good. A consumer who has an income of 10 could afford to consume some
commodity bundles that include 5 units of good 1 and 6 units of good 2.
ANS: T DIF: 2
11. A decrease in income pivots the budget line around the bundle initially consumed.
ANS: F DIF: 1
MULTIPLE CHOICE
1. If she spends all of her income on breadfruits and melons, Natalie can just afford 9 breadfruits
and 10 melons per day. She could also use her entire budget to buy 3 breadfruits and 12 melons
per day. The price of breadfruits is 8 yen each. How much is Natalie’s income per day?
, a. 313 yen
b. 317 yen
c. 309 yen
d. 303 yen
e. None of the above.
ANS: E DIF: 1
2. If she spends all of her income on uglifruits and breadfruits, Maria can just afford 11 uglifruits
and 4 breadfruits per day. She could also use her entire budget to buy 3 uglifruits and 8
breadfruits per day. The price of uglifruits is 6 pesos each. How much is Maria’s income per day?
a. 115 pesos
b. 105 pesos
c. 114 pesos
d. 119 pesos
e. None of the above.
ANS: C DIF: 1
3. Harold lives on Doritos and seafood salads. The price of Doritos is 1 dollar per bag and the price
of seafood salads is 2 dollars each. Harold allows himself to spend no more than 11 dollars a day
on food. He also restricts his consumption to 6,500 calories per day. There are 1,500 calories in a
bag of Doritos and 500 calories in a seafood salad. If he spends his entire money budget each day
and consumes no more calories than his calorie limit, he can consume up to
a. 3 bags of Doritos per day but no more.
b. 1 bag of Doritos per day but no more.
c. 4 seafood salads per day but no more.
d. 4 bags of Doritos per day but no more.
e. None of the above.
, ANS: A DIF: 2
4. Quincy lives on pretzels and seafood salads. The price of pretzels is 1 dollar per bag and the price
of seafood salads is 2 dollars each. Quincy allows himself to spend no more than 14 dollars a day
on food. He also restricts his consumption to 3,400 calories per day. There are 600 calories in a
bag of pretzels and 200 calories in a seafood salad. If he spends his entire money budget each day
and consumes no more calories than his calorie limit, he can consume up to
a. 2 bags of pretzels per day but no more.
b. 5 seafood salads per day but no more.
c. 4 bags of pretzels per day but no more.
d. 5 bags of pretzels per day but no more.
e. None of the above.
ANS: C DIF: 2
5. Clara spends her entire budget and consumes 5 units of x and 13 units of y. The price of x is twice
the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If
she continues to buy 13 units of y, what is the largest number of units of x that she can afford?
a. 10
b. 5
c. 12
d. 14
e. There is not enough information to say.
ANS: A DIF: 1
6. Maria spends her entire budget and consumes 5 units of x and 6 units of y. The price of x is twice
the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If
she continues to buy 6 units of y, what is the largest number of units of x that she can afford?
a. 12
b. 10
