Exhibit 20-8

-Refer to Exhibit 20-8. If the price of good X rises, the budget constraint moves from budget constraint

Question

Exhibit 20-8
​
 
-Refer to Exhibit 20-8. If the price of good X rises, the budget constraint moves from budget constraint

Quizplus · Accepted Answer

When the price of good X rises, the consumer can afford less of good X for any given amount of good Y, causing the budget constraint to pivot inward. This could be represented by a movement from 1 to 2 (if the budget constraint initially was at 1) or from 3 to 1 (if the budget constraint initially was at 3), depending on the initial position of the budget constraint.

Exhibit 20-8 ​

Exhibit 20-8