Exhibit 20-8

Refer to Exhibit 20-8. If the price of good X falls, the budget constraint moves from budget constraint
A)1 to 2.
B)3 to 2.
C)3 to 1.
D)1 to 3.

Question

Exhibit 20-8 ​

Refer to Exhibit 20-8. If the price of good X falls, the budget constraint moves from budget constraint
A)1 to 2. 
B)3 to 2. 
C)3 to 1. 
D)1 to 3.

Quizplus · Accepted Answer

When the price of good X falls, the consumer can afford to purchase more of it with the same amount of income. This results in a shift of the budget constraint outward, from budget constraint 1 to 3. The optimal choice for the consumer in this case would be point B, which maximizes utility within the new budget constraint. Therefore, the answer is D - the budget constraint shifts from 1 to 3, and the best choice is point B.

Exhibit 20-8 ​ Refer to Exhibit 20-8. If the Price of Good X

Exhibit 20-8 Refer to Exhibit 20-8. If the Price of Good X