High School Economics Quiz: Budget Lines, Constraints & Trade-offs

📚 Quick Study Guide

• 💰 Budget Line: 📈 A graph showing the possible combinations of two goods that a consumer can purchase with a given income and prices.
• 🍎 Constraint: 🚫 The limit on consumption choices due to income and prices. Represented by the budget line equation: $P_xX + P_yY \le I$, where $P_x$ and $P_y$ are prices, $X$ and $Y$ are quantities, and $I$ is income.
• ⚖️ Trade-off: 🛍️ The act of giving up one thing for another. Represented by the slope of the budget line, which is the negative of the price ratio: $-\frac{P_x}{P_y}$.
• 📉 Opportunity Cost: The value of the next best alternative forgone. It's what you give up when you make a choice.
• 💡 Shifts in Budget Line: An increase in income shifts the budget line outward (more consumption possible), while a decrease shifts it inward (less consumption possible). Changes in prices rotate the budget line.

Practice Quiz

1. What does a budget line represent?
   1. All possible combinations of goods a consumer can afford.
   2. The consumer's preferences.
   3. The supply of goods in the market.
   4. The production possibilities of a firm.
2. If a consumer's income increases, what happens to the budget line?
   1. It shifts inward.
   2. It shifts outward.
   3. It rotates.
   4. It remains unchanged.
3. What does the slope of the budget line represent?
   1. The consumer's income.
   2. The price of one good.
   3. The ratio of the prices of the two goods.
   4. The quantity of goods consumed.
4. Suppose a consumer has an income of $10, the price of good X is $2, and the price of good Y is $1. What is the maximum quantity of good X the consumer can buy?
   1. 5
   2. 10
   3. 2
   4. 1
5. What is a trade-off in the context of a budget constraint?
   1. The act of buying more of both goods.
   2. The act of giving up some of one good to get more of another.
   3. The act of saving money.
   4. The act of increasing income.
6. If the price of good X increases, what happens to the budget line?
   1. It shifts outward parallel to the original line.
   2. It shifts inward parallel to the original line.
   3. It rotates inward along the X-axis.
   4. It rotates outward along the X-axis.
7. Which of the following is NOT a factor that defines a consumer's budget constraint?
   1. Consumer Income
   2. Prices of Goods
   3. Consumer Preferences
   4. Available Credit