A doubling of all prices has the same effect on the budget line as reducing income by half.

Question

Quizplus · Accepted Answer

This is because budget lines represent all possible combinations of goods that can be purchased given a certain level of income and prices. Doubling all prices would shift the budget line inward (toward the origin), as the same amount of money would now be able to buy fewer goods. Similarly, reducing income by half would also shift the budget line inward, as there is now less money available to purchase goods. Thus, both actions have the same effect on the budget line.

A Doubling of All Prices Has the Same Effect on the Budget