Suppose the Only Two Goods That Lorenzo Consumes Are Wine

question 150

Multiple Choice

Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

• A)the slope of Lorenzo's budget has not changed.
• B)the slope of Lorenzo's budget constraint is flatter at the new prices.
• C)the slope of Lorenzo's budget constraint is steeper at the new prices.
• D)Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

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Definitions:

Reestablish

The act of restoring or bringing something back to its former position or condition.

Types

Various categories or sorts distinguished by a specific characteristic.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, which pays periodic interest payments and returns the principal at maturity.

William James

An American philosopher and psychologist, a leading thinker of the late 19th century known for his contributions to pragmatism and psychology.