With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

Question

Quizplus · Accepted Answer

When the price of one good increases and the price of the other decreases, the consumer's ability to purchase combinations of these goods changes, causing the budget line to pivot around a point, leading it to intersect the original budget line at some point. This reflects the new trade-offs and purchasing power with the fixed income.

With a Fixed Money Income, an Increase in the Price