If the price of a good on the horizontal axis increases, typically we would expe
ID: 1219859 • Letter: I
Question
If the price of a good on the horizontal axis increases, typically we would expect:
The budget line to shift in parallel to the original budget line and the consumer consumers less of both goods
The budget line to shift out parallel to the original budget line and the consumer consumers more of both goods
The budget line pivots inward and the consumer consumers less of both goods
The budget line pivots outward and the consumer consumers more of both goods
a.The budget line to shift in parallel to the original budget line and the consumer consumers less of both goods
b.The budget line to shift out parallel to the original budget line and the consumer consumers more of both goods
c.The budget line pivots inward and the consumer consumers less of both goods
d.The budget line pivots outward and the consumer consumers more of both goods
Explanation / Answer
The budget line pivots inward and the consumer consumes less of both goods.
Increase in price of good x will reduce its consumption and this will pivots the budget line inwards on the horizontal axis and leads to less consumption of both the goods.