Suppose that the quantity of hamburgers is measured along the vertical axis and that the number of bags of popcorn is measured along the horizontal axis. The budget constraint has a vertical intercept of 10 hamburgers, and the slope of the line is -1. If
the price of popcorn doubles, we know that
A) the consumer will buy half as many bags of popcorn as before.
B) the new equilibrium will have a marginal rate of substitution of -2.
C) the new equilibrium will have a marginal rate of substitution of -0.5.
D) the vertical axis of the budget line shifts to 5 hamburgers.
Answer: B
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A) output would double. B) prices would fall. C) prices would double. D) prices would remain constant.
Which of the following components of spending is not treated as a given value in the short-run macro model?
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Which of these is true of shareholders?
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