Econ 101, Part 8: Checkpoint 1

Quick checkpoint - five questions on budget constraints, indifference curves, income and substitution effects, Giffen goods and production.

Question 1 of 5 What does the slope of a budget line show?

How happy a person is The relative price, or opportunity cost of one good in terms of the other A person's total wealth The quality of goods

If a book costs twice as much as a ticket, one book costs two tickets.

Question 2 of 5 Where does a consumer make the best choice?

Anywhere inside the budget line Where the highest affordable indifference curve touches the budget line At the lowest indifference curve Where they buy only one good

There, the willingness to trade equals the market's relative price.

Question 3 of 5 For an inferior good, how do the income and substitution effects of a price fall compare?

They work in the same direction They work against each other Neither exists Only the income effect exists

For normal goods, both effects work together.

Question 4 of 5 What did Jensen and Miller find in Hunan, China?

Rice demand never changed The poorest households bought less rice when it became cheaper, consistent with a Giffen good Rice was a luxury good Households stopped eating rice

They used the savings to buy more preferred foods like meat.

Question 5 of 5 What does the law of diminishing marginal returns say?

Total output falls when inputs rise Adding more of one input, with others fixed, eventually adds less extra output each time All inputs are equally productive Output always doubles

Fixed capital limits how productive extra workers can be.

← Back to Returns to Scale Next lesson → Choosing the Cheapest Mix of Inputs

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