If prices and income in a two-good society double, what will happen to the budget line?
A) The intercepts of the budget line will increase.
B) The intercepts of the budget line will decrease.
C) The slope of the budget line may either increase or decrease.
D) Insufficient information is given to determine what effect the change will have on the budget line but we know society is worse-off.
E) There will be no effect on the budget line.

Question

Quizplus · Accepted Answer

If both prices and income in a society double, the budget line remains unchanged because the relative prices of the goods, which determine the slope of the budget line, do not change. The intercepts, which are determined by how much of each good can be bought if all income is spent on that good, also do not change in relative terms.

If Prices and Income in a Two-Good Society Double, What