Suppose the price of A is $2 and the price of B is $3 and that good B is plotted on the horizontal axis. If the price of B doubles and the price of A triples, leaving the consumer’s income unchanged, the budget lineGroup of answer choiceswill become steeper.will become flatter.will shift in toward the origin.will shift out from the origin.
Question
Suppose the price of A is 3 and that good B is plotted on the horizontal axis. If the price of B doubles and the price of A triples, leaving the consumer’s income unchanged, the budget lineGroup of answer choiceswill become steeper.will become flatter.will shift in toward the origin.will shift out from the origin.
Solution
The budget line will become steeper.
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. In this case, it's the price of A divided by the price of B.
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Initially, the slope of the budget line is 3 = 0.67.
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If the price of B doubles to 6, the new slope of the budget line is 6 = 1.
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Since 1 is greater than 0.67, the budget line becomes steeper.
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The budget line does not shift in or out because the consumer's income has not changed. A shift in the budget line would represent a change in the consumer's purchasing power, which is not the case here.
So, the correct answer is "will become steeper."
Similar Questions
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