Microeconomics: Consider a consumer who maximizes utility subject to a budget constraint. If her income decreases, then:

Question

A.the budget constraint will shift inward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will decrease

 

B.the budget constraint will shift inward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will increase

 

C.the budget constraint will shift inward, the consumer will move to a new equilibrium along a higher indifference curve, and the level of total utility will decrease

 

D.the budget constraint will shift inward, the consumer will move to a new equilibrium along a higher indifference curve, and the level of total utility will increase

 

E.the budget constraint will shift outward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will decrease

Answer 1

When you have less resources (a decreased budget), the budget constraint has shifted inwards.

 

The indifference curve measures the utility that the consumer gets out of a certain good measured against another one in variable quantities.  If there is decrease budget, there is a lower indifference curve.

 

The total utility thus decreases.

 

So the answer is A.

 

Looks like you're up late doing ECON 101, Ashley! : )