-The above figure shows Jane's budget line and two of her indifference curves. Which of the following happens to Jane's budget line if the price of a lobster dinner falls?
A) It would rotate outward, pivoting around the vertical intercept 10 lobster dinners.
B) It would rotate outward, pivoting around the horizontal intercept 20 steak dinners.
C) It would rotate inward, pivoting around the horizontal intercept 20 steak dinners.
D) It would rotate inward, pivoting around the vertical intercept 10 lobster dinners.

Question

-The above figure shows Jane's budget line and two of her indifference curves. Which of the following happens to Jane's budget line if the price of a lobster dinner falls?
A) It would rotate outward, pivoting around the vertical intercept 10 lobster dinners. 
B) It would rotate outward, pivoting around the horizontal intercept 20 steak dinners. 
C) It would rotate inward, pivoting around the horizontal intercept 20 steak dinners. 
D) It would rotate inward, pivoting around the vertical intercept 10 lobster dinners.

Quizplus · Accepted Answer

When the price of a lobster dinner falls, Jane can afford more lobster dinners for the same budget, causing the budget line to rotate outward around the fixed point of steak dinners (the good whose price hasn't changed), which is the horizontal intercept.

-The Above Figure Shows Jane's Budget Line and Two of Her