Suppose there are two goods, the prices of both goods are positive, and a consumer's income is also positive.If the consumer's income doubles and the price of both goods triple,
A)the consumer's budget line gets steeper and shifts inward.
B)the slope of the consumer's budget line does not change but the budget line shifts outward away from the origin.
C)the consumer's budget line gets steeper and shifts outward.
D)the slope of the consumer's budget line does not change but the budget line shifts inward toward the origin.
E)the consumer's budget line gets flatter and shifts inward.

Question

Quizplus · Accepted Answer

The slope of the budget line, which represents the rate at which the consumer can trade one good for another, is determined by the relative prices of the two goods. If both prices triple, the relative price (price of one good divided by the price of the other) remains unchanged, so the slope of the budget line does not change. However, because the consumer's income only doubles while prices triple, the consumer can afford less of both goods, causing the budget line to shift inward toward the origin.

Suppose There Are Two Goods, the Prices of Both Goods