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 falls by 10% and the price of bananas falls 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

When the price of bagels falls by 10% and the price of bananas falls by 20%, the budget line becomes flatter because the relative price of bananas decreases more than that of bagels, allowing more bananas to be purchased for the same amount of money.

Assume There Is a Budget Line with Bagels on the Vertical