1 Fill in the blank Based on the graph from section if a hou

1. Fill in the blank: Based on the graph from section, if a household consumes but does not produce either of the goods, a price decrease for one good leads to a __________ of the budget line.

2. For a producer, an increase in price leads to ______ quantity produced and _____ profit.

higher, lower

3. For a household that both consumes and produces a good, a change in the price of that good might lead to no change in the utility level of the household.

4. For a household that both consumes and produces a good, a decrease in the price of that good can possibly lead to

D.) All of the above

5. In the consumer model discussed in section, a change in the price of food leads to two effects, substitution and income, that

Solution

Question 1

If a household consumes two goods and price of one good decreases then this will increase the real income of household and it would be able to purchase more units of good whose price has decreased.

This will lead to outward rotation of budget line with respect to axis on which the good whose price has decreased is taken.

On the other hand, there will be no change for axis intercept of the other good.

Hence, the correct answer is the option (2) [Outward rotation, no change for axis intercept of the other good].