Assume that there are two goods,x and y.The quantity of good x is measured on the x-axis and the quantity of good y is measured on the y-axis.If the price of good y rises,then the
A) y-axis intercept of the budget line increases.
B) y-axis intercept of the budget line increases and the x-axis intercept of the budget line decreases.
C) y-axis intercept of the budget line decreases and the x-axis intercept does not change.
D) slope of the budget line changes.
E) Both answers C and D are correct.

Question

Quizplus · Accepted Answer

When the price of good y increases, the amount of good y that can be purchased with a given income decreases, leading to a decrease in the y-axis intercept of the budget line. Since the price of good x does not change, the x-axis intercept remains the same. The change in the price of good y also alters the slope of the budget line, making E the correct answer.

Assume That There Are Two Goods,x and Y