Use the following to answer questions 38-40:
Figure 4.14
-(Figure 4.14) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change?
A) a decrease in income
B) a decrease in the price of good X
C) a decrease in income and an increase in the price of good X relative to that of good Y
D) an increase in the relative price of good X to that of good Y

Question

Use the following to answer questions 38-40:
Figure 4.14 
-(Figure 4.14) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change?
A) a decrease in income 
B) a decrease in the price of good X 
C) a decrease in income and an increase in the price of good X relative to that of good Y 
D) an increase in the relative price of good X to that of good Y

Quizplus · Accepted Answer

The shift from constraint 2 to constraint 1 indicates a decrease in purchasing power, which could be caused by a decrease in income and an increase in the price of good X relative to good Y.

Use the Following to Answer Questions 38-40