A decline in income is shown on the budget line by:
A)a rotation of the budget line such that its horizontal intercept is larger than its vertical intercept.
B)a parallel shift in the budget constraint toward the origin.
C)a rotation in the budget line so it intersects the vertical axis closer to the origin.
D)a change in the relative price ratio.

Question

Quizplus · Accepted Answer

A decline in income would result in a decrease in the total amount of goods and services that can be purchased, leading to a parallel shift in the budget constraint towards the origin. This is because the consumer now has less money to spend on goods and services. Rotating the budget line or changing relative price ratios would not be affected by a decline in income alone.

A Decline in Income Is Shown on the Budget Line