When relative prices change in an exchange economy, an individual's budget line:
A)pivots at its intercept with an axis.
B)shifts in the direction opposite the price change.
C)pivots around her initial endowment.
D)shifts in the direction of the price change.

Question

Quizplus · Accepted Answer

In an exchange economy, when relative prices change, the budget line pivots around the individual's initial endowment point because the endowment represents the initial allocation of goods that the individual can trade at the new relative prices.

When Relative Prices Change in an Exchange Economy, an Individual's