Question

1- If a consumer's income decreases, what will happen to the budget line?

Multiple Choice

• It will shift outward.

• It will become steeper.

• It will become flatter.

• It will shift inward.

2- If an increase in income causes a decrease in the consumption of good Y, we know that good Y is:

Multiple Choice

• a normal good.

• a substitute.

• a complement.

• an inferior good.

3- A > B means:

Multiple Choice

• bundle A is not preferred to bundle B.

• bundle A is preferred to bundle B.

• bundle A is equally preferred to bundle B.

• bundle A is greater than bundle B.

• 4- Managers can get workers to work longer hours by:

  Multiple Choice

• offering overtime pay.

• offering a higher flat wage rate on all hours worked.

• decreasing the hourly wage scale.

• None of the statements is correct.

Answer 1

Ans1. It will shift inwards- as the consumer would now purchase less amount of all the goods with a low income budget. And hence the budget line will shift inwards

Ans2. An inferior good- inferior goods as those goods whose demand falls with an increase in come as people now can afford normal goods with increased income. Inferior goods demand increases with a falling income of the consumers.

Ans3. Bundle A is greater than bundle B -

Ans4. Offering overtime pay- this would enhance the working efficiency of the employees as they would now work for more hours in consideration for good pay scale.