An increase in the price of a good causes

Select one:

a.the slope of the budget line to rotate inward.

b.an increase in the consumption of that good.

c.a parallel rightward shift of the budget line.

d.a parallel rightward shift of the budget line.

An increase in income, all else equal, will cause a parallel shift outward of the budget line.

Select one:

True

False

If the price of a good changes, the income effect can be shown graphically by comparing the utility-maximizing quantities

Select one:

a.on the old budget line and the new budget line.

b.on the original indifference curve when faced with the original prices and when faced with the new prices.

c.on the new budget line and a hypothetical budget line that is a shift back to the original indifference curve parallel to the new budget line.

d.on the new indifference curve.

Larry spends all of his income on beer and cake. The price of cake decreases, then the

Select one:

a.substitution effect on cake is positive, and the income effect on cake is positive.

b.substitution effect on cake is ambiguous, and the income effect on cake is ambiguous.

c.substitution effect on cake is positive, and the income effect on cake is ambiguous.

d.substitution effect on cake is ambiguous, and the income effect on cake is positive.

If a good is a normal good,

Select one:

a.demand curves always slope downward.

b.the income effect and substitution effect are in the same direction.

c.the Engel curve slopes upward.

d.All of the above.