3 Question True/False a. If there are two goods with positive priccs and the price of onc good is reduccd, while

3 Question True/False a. If there are two goods with positive priccs and the price of onc good is reduccd, while

 

 

answer:

A. FALSE.

A decrease in price will make things cheaper and threrefore, more goods can be purchased from the same income. This will increase the size of the budget set.

B) TRUE

SLOPE of a budget line = – (price of one good / price of another good)

Now, if prices of both the goods will increase by the same amount there won’t be any change in this ratio which equals slope of the budget line.

C) FALSE

Horizontal intercept = money income / price of good 1

An increase in price of good 1 will decrease the horizontal intercept of the budget line.

D) FALSE

Just with the ratio it can not be determined what will be the horizontal and vertical intercepts. It just tells about the slope of the budget line.

E) FALSE

A decrease in income shifts the budget line inward.

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