f both prices increases by 50%Group of answer choicesbudget constraint will be unchanged.slope of the budget constraint stay the same.slope of the budget constraint will decrease.budget constraint will shift outward in a parallel fashion.
Question
f both prices increases by 50%Group of answer choicesbudget constraint will be unchanged.slope of the budget constraint stay the same.slope of the budget constraint will decrease.budget constraint will shift outward in a parallel fashion.
Solution
The slope of the budget constraint will stay the same.
Here's why:
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The slope of the budget line is determined by the ratio of the prices of the two goods. If both prices increase by the same percentage (in this case, 50%), the ratio of the prices stays the same. Therefore, the slope of the budget line, which represents this ratio, also stays the same.
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However, because the consumer's income has not changed, they can now afford less of both goods. This means that the budget line will shift inward, not outward. The budget line represents all combinations of the two goods that the consumer can afford. If the prices of both goods increase, the consumer can afford fewer combinations of the two goods, so the budget line shifts inward.
So, the correct answer is "slope of the budget constraint stay the same."
Similar Questions
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