26. The substitution affect isolates the change in the consumption of a good cau

Question

26. The substitution affect isolates the change in the consumption of a good caused by:
A. The lower "real" income
B. The change in the relative prices of two goods
C. The change in consumer preferences
D. None of the statements associated with this question are correct

27. The slope of the budget line represents
A. The marginal rate of substitution
B. The market rate of substitution
C. The budget rate of substitution
D. The opportunity rate of substitution

28. Given that income is $300, the price of good Y is $15, and the price of good X is $20. What is the vertical intercept of the budget line?
A. 4,500
B. 300
C. 20
D. 15

29. Which of the following pairs of goods is probably not an example of substitutes?
A. Raincoats and umbrellas
B. Chicken and steak
C. Potatoes and stuffing
D. Hamburgers and ketchup

30. Consider a two good world, with commodities X and Y. If X is an inferior good, then an increase in consumer income cannot
A. Decrease the demand for Y
B. Increase the demand for Y
C. Decrease the demand for X
D. Make the consumer better off

Explanation / Answer

26. B. The change in the relative prices of two goods

27. A. The marginal rate of substitution

28. C. 20

29. D. Hamburgers and ketchup

30. A. Decrease the demand for Y

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