An increase in income, holding prices constant, can be represented as:
A) a change in the slope of the budget line.
B) a parallel outward shift in the budget line.
C) an outward shift in the budget line with its slope becoming flatter.
D) a parallel inward shift in the budget line.

Question

Quizplus · Accepted Answer

When income increases while prices remain constant, the budget constraint shifts outward in a parallel fashion. This is because the consumer can now afford to purchase more of all goods and services, but the relative prices between them remain the same. The slope of the budget line remains constant, since it is determined by the relative prices of the two goods.

An Increase in Income, Holding Prices Constant, Can Be Represented