George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). The price of a doughnut is $1 and the price of coffee is $2.50. Suppose George's income drops to $25 and the prices of doughnuts and coffee each fall to one-half their initial prices. One would expect George's budget line to:
A) shift to the right.
B) shift to the left.
C) rotate around one of the axes, but one cannot tell which one.
D) stay the same.

Question

Quizplus · Accepted Answer

George's budget line will stay the same because both his income and the prices of goods have been halved, maintaining the same purchasing power and budget constraint.

George Has a Weekly Income (I) of $50, Which He