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Practice Questions - Budget Constraint

This document contains practice questions about budget constraints and opportunity costs. There are 6 multi-part questions that provide scenarios where an individual has a budget that can be allocated between visits to grandparents and pairs of shoes. The questions ask students to write budget constraint equations, draw budget constraint graphs, calculate opportunity costs, and analyze how changes in prices and budgets would impact the budget constraint, available choices, real income, and opportunity costs.

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Ali Zubair
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Download as PDF, TXT or read online on Scribd
320 views

Practice Questions - Budget Constraint

This document contains practice questions about budget constraints and opportunity costs. There are 6 multi-part questions that provide scenarios where an individual has a budget that can be allocated between visits to grandparents and pairs of shoes. The questions ask students to write budget constraint equations, draw budget constraint graphs, calculate opportunity costs, and analyze how changes in prices and budgets would impact the budget constraint, available choices, real income, and opportunity costs.

Uploaded by

Ali Zubair
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Course: Principles of Microeconomics

Instructor: Rabbia Tariq

Cost of Production
Practice Questions

1. Assume that you have a budget of $2000 to spend. You can either make a visit to your
grandparents in other town that costs you $50/visit or you can buy yourself new pair of
shoes that has a price of $20/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit goes up to $100?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit goes up to $100 and price of a air of shoe
goes up to $40?
2. Assume that you have a budget of $1000 to spend. You can either make a visit to your
grandparents in other town that costs you $50/visit or you can buy yourself new pair of
shoes that has a price of $20/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if income decreases to $600?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit goes up to $100 and and income decreases
to $600?
3. Assume that you have a budget of $200 to spend. You can either make a visit to your
grandparents in other town that costs you $10/visit or you can buy yourself new pair of
shoes that has a price of $5/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit falls to $8?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit falls to $8 and pair of shoes becomes
expensive (new price for a pair of shoes=$10)?
4. Assume that you have a budget of $500 to spend. You can either make a visit to your
grandparents in other town that costs you $10/visit or you can buy yourself new pair of
shoes that has a price of $5/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if now you have $800 as budget?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of one visit falls to $8 and available budget is $800?
5. Assume that you have a budget of $500 to spend. You can either make a visit to your
grandparents in other town that costs you $50/visit or you can buy yourself new pair of
shoes that has a price of $50/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if now you have $250 as budget?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of both doubles but budget is same?
6. Assume that you have a budget of $500 to spend. You can either make a visit to your
grandparents in other town that costs you $25/visit or you can buy yourself new pair of
shoes that has a price of $25/pair.
a) Write your budget constraint equation in this case.
b) Show your budget constraint and choice set in a graph.
c) What is the opportunity cost of one pair of shoes?
d) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if now you have $250 as budget?
e) What will be the effect on budget constraint's equation, budget constraint's graph, real
income and opportunity cost if price of both reduce to half and budget is $250?

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