Suppose the price of a pizza is €8, the price of a milk shake is €2, and the consumer's weekly income is €32. Suppose we have constructed the consumer's budget line with pizzas on the vertical axis and milk shakes on the horizontal axis. Given this information, if the consumer's income rises to €48, then what will happen to the consumer's budget line?
A) It move outwards so that it now intersects the vertical axis at 6 pizzas per week and the horizontal axis at 24 milk shakes per week.
B) It would not change.
C) It would move inwards so that it now intersects the vertical axis at 3 pizzas per week and the horizontal axis at 8 milk shakes per week.
D) It would rotate in a clockwise direction around the point at which it intersects the horizontal axis.

Question

Quizplus · Accepted Answer

When the consumer's income rises to €48, their budget line will shift outwards because they have more money available to spend. The slope of the line will remain the same, but the intercepts on the vertical and horizontal axis will change. Using the formula for the budget line, a new intercept on the vertical axis can be calculated as (48/8)=6, and a new intercept on the horizontal axis can be calculated as (48/2)=24. Therefore, the new budget line will intersect the vertical axis at 6 pizzas per week and the horizontal axis at 24 milk shakes per week.

Suppose the Price of a Pizza Is €8, the Price