Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels rises by 10% and the price of bananas rises by 20%?
A) There is a parallel outward shift of the budget line.
B) There is a parallel inward shift of the budget line.
C) The budget line changes to have a steeper slope.
D) The budget line changes to have a flatter slope.

Question

Quizplus · Accepted Answer

The budget line becomes steeper because the relative price of bagels (on the vertical axis) increases more than the price of bananas (on the horizontal axis). This means you now have to give up more bananas to get an additional bagel, indicating a steeper slope.

Assume There Is a Budget Line with Bagels on the Vertical