An increase in the price of a good
A) rotates the budget line inward and changes its slope.
B) rotates the budget line outward and changes its slope.
C) results in a movement downward along the budget line.
D) results in a movement upward along the budget line.
E) shifts the budget line inward and does not change its slope.

Question

Quizplus · Accepted Answer

An increase in the price of a good would lead to a decrease in the quantity of that good that can be purchased with a given income. This would lead to a rotation of the budget line inward (toward the origin) because the consumer could no longer afford the same combination of goods as before the price increase. The slope of the budget line would also change because the relative prices of the two goods would change.

An Increase in the Price of a Good