An indifference map shows the optimal consumption bundle of a consumer for two goods A and B.Which of the following factors would lead to a parallel shift of the budget line allowing the consumer to reach a higher indifference curve?
A)A fall in the price of good A
B)A parallel outward shift of the consumer's indifference curve
C)An increase in the consumer's income
D)A fall in the price of good B

Question

Quizplus · Accepted Answer

An increase in the consumer's income would allow the consumer to purchase more of both good A and good B, causing a parallel shift of the budget line outward. This allows the consumer to reach a higher indifference curve without changing the relative prices of the two goods. Therefore, option C is the correct choice. A fall in the price of good A or good B would also result in a shift of the budget line, but it would be a rotation rather than a parallel shift. And a parallel outward shift of the indifference curve is not caused by any of the factors listed.

An Indifference Map Shows the Optimal Consumption Bundle of a Consumer