Exhibit 6A-1 Budget line

As shown in Exhibit 6A-1, a rightward shift in the budget line from AB to CD would result from:
A) a price reduction in good X.
B) a price reduction in good Y.
C) a change in consumer preference.
D) an increase in consumer income.

Question

Exhibit 6A-1 Budget line
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​ As shown in Exhibit 6A-1, a rightward shift in the budget line from AB to CD would result from:
A) ​ a price reduction in good X. 
B) ​ a price reduction in good Y. 
C) ​ a change in consumer preference. 
D) ​ an increase in consumer income.

Quizplus · Accepted Answer

A rightward shift in the budget line indicates an increase in consumer income, as this would allow the consumer to purchase more of both good X and good Y at any given price level. A price reduction in good X or good Y would result in a rotation of the budget line around one of the intercept points, rather than a shift in the entire line. A change in consumer preference would not necessarily impact the budget line, as it only reflects the combination of goods a consumer can purchase with a given income and price levels.

Exhibit 6A-1 Budget Line