Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

18. Consumer Choice and Behavioral Economics

Budget Constraint

Microeconomics

18. Consumer Choice and Behavioral Economics

Budget Constraint

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Multiple Choice

Campin' Sam buys firewood and ice. When the price of firewood decreases, the maximum number of firewood she can purchase _ and the maximum number of ice she can purchase ___

Increases; increases

Increases; decreases

Decreases; increases

Increases; remains constant

Remains constant; remains constant

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Verified step by step guidance

Understand the concept of a budget constraint: A budget constraint represents all the combinations of goods and services that a consumer can purchase given their income and the prices of those goods and services.

Consider the effect of a price change on the budget constraint: When the price of one good (firewood) decreases, the consumer can afford to buy more of that good with the same amount of money, effectively increasing the maximum quantity of firewood that can be purchased.

Analyze the impact on the other good (ice): Since the price of ice has not changed, the maximum quantity of ice that can be purchased remains constant, assuming the consumer's income and the price of ice remain unchanged.

Visualize the budget line: The budget line pivots outward from the axis representing firewood, indicating that more firewood can be purchased, while the intercept on the ice axis remains the same.

Conclude the effect on purchasing power: The decrease in the price of firewood increases the consumer's purchasing power for firewood, but does not affect the purchasing power for ice, leading to the conclusion that the maximum number of firewood increases while the maximum number of ice remains constant.