1. If income increases, then the
A. Budget line rotates counter-clockwise
B. Budget line rotates clockwise
C. Budget line shifts to the right
D. Opportunity set contracts
2. A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?
A. Increase the vertical intercept
B. Decrease the horizontal intercept
C. Parallel outward shift of the line
D. Parallel inward shift of the line
3. What are the advantages to a firm of selling gift certificates?
A. Greater quantity sold if your good is a normal good
B. Greater quantity if your good is an inferior good
C. Reduced strain on the refund department and greater quantity sold if your good is a normal good
D. Reduced strain on the refund department and greater quantity if your good is an inferior good
4. Suppose that consumers' preferences are well behaved in that properties 4-1-4-4 are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y increases. Then, which of the following effect is known with certainty.
A. The income and substitution effect reinforce one another leading to an overall increase the consumption of good X
B. The income and substitution effect reinforce one another leading to an overall decrease the consumption of good X
C. There will be an indeterminate effect on the consumption of good X
D. The income and substitution effect will reinforce one another leading to an overall increase in the consumption of good Y