The figure above shows two budget lines.
-Based on the figure above,which of the following would lead the budget line to change from BL? to BL??
A) a rise in the price of water
B) a fall in the price of water
C) a rise in the price of water and the price of gum
D) a decrease in the consumer's budget
E) an increase in the consumer's budget

Question

The figure above shows two budget lines.
-Based on the figure above,which of the following would lead the budget line to change from BL? to BL??
A) a rise in the price of water 
B) a fall in the price of water 
C) a rise in the price of water and the price of gum 
D) a decrease in the consumer's budget 
E) an increase in the consumer's budget

Quizplus · Accepted Answer

A fall in the price of water would increase the consumer's purchasing power, allowing them to buy more water and gum at the same budget. This would shift the budget line outwards, from BL to BL'. A rise in the price of water or gum, or a decrease in the consumer's budget, would have the opposite effect and shift the budget line inwards, while a rise in both prices or an increase in the consumer's budget would cause the budget line to shift parallel to BL.

The Figure Above Shows Two Budget Lines