If consumption of Y is depicted on the vertical axis and consumption of X is depicted on the horizontal axis, a parallel inward shift in the budget constraint occurs when:
A)prices for both X and Y fall by a given percentage.
B)the relative price of X rises.
C)the relative price of Y rises.
D)prices for both X and Y rise by a given percentage.

Question

Quizplus · Accepted Answer

An inward shift in the budget constraint occurs when the consumer's purchasing power decreases, which happens when prices for both goods X and Y rise by a given percentage, reducing the quantity of both goods that can be bought with a given income.

If Consumption of Y Is Depicted on the Vertical Axis