When income decreases, the slope of the budget line remains the same, but the intercepts associated with the goods change.

Question

Quizplus · Accepted Answer

The slope of the budget line represents the rate at which one good can be substituted for another (the price ratio of the two goods), which does not change with income. However, a decrease in income reduces the total amount that can be spent on goods, shifting the budget line inward and changing its intercepts on the axes, which represent the maximum amounts of each good that can be purchased.

When Income Decreases, the Slope of the Budget Line Remains