Question

Pricier bread and cereal. Coming​ soon?

Surging wheat and corn prices could hit the items in your grocery basket soon.

  

​Source: CNN​ Money, May​ 19, 2011

  

The rise in the price of food​ _______.   

A.

shifts the budget line​ inward, and the new budget line is parallel to the original budget line

B.

does not change the budget line

C.

rotates the budget line outward

D.

rotates the budget line inward

E.

shifts the budget line​ outward, and the new budget line is parallel to the original budget line

When the price of food​ rises, the marginal utility per dollar from food​ ______ the marginal utility from​ non-food items and consumers​ _______ the quantity of food they buy.

   

A.

is less​ than; increase

B.

is less​ than; do not change

C.

​exceeds; decrease

D.

is less​ than; decrease

E.

​exceeds; increase

Answer 1

a) "A"

this will shift the budget line inward only when the price of both the goods have changed equally, if one goods price has increased more than the other then the budget curve will rotate and not shift.

b) "C"

The marginal utility in the market exceeds and that of other goods will fall.