A budget line is drawn with automobiles on the vertical axis and boats on the horizontal. Imposing a tax on boats that boosts the price of a boat makes the
A) budget line steeper.
B) indifference curves steeper.
C) budget line flatter.
D) indifference curves flatter.

Question

Quizplus · Accepted Answer

When a tax is imposed on boats, it effectively increases the price of boats relative to automobiles. This means that for a given amount of money, a consumer can now buy fewer boats than before for each automobile they could buy, making the budget line steeper as it reflects a higher relative price of boats.

A Budget Line Is Drawn with Automobiles on the Vertical