Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:
A) become flatter.
B) become steeper.
C) shift outward.
D) become steeper or flatter depending on the relationship between prices and income.

Question

Quizplus · Accepted Answer

When the price of one good falls relative to another, the purchasing power of the income increases. This means that the consumer can now afford more of both goods. As a result, the budget line will shift outward and become flatter, since the consumer can now purchase more of either good without having to give up as much of the other good.

Assume That Food Is Measured on the Horizontal Axis and Clothing