Gertrude has a $15 budget to spend on soda and crackers.Soda costs $1 per bottle and crackers cost 50¢ each.The quantity of soda is measured on the vertical axis.If the price of soda increases to $2 per bottle and the price of crackers increase to $1 each,the
A) indifference curves shift inward.
B) indifference curves shift outward.
C) budget line shifts inward.
D) budget line shifts outward.
E) demand curve for soda shifts leftward.

Question

Quizplus · Accepted Answer

The budget line and not the indifference curves shift as a result of an increase in prices. The price increase implies that Gertrude can afford fewer items than before with her $15 budget. Therefore, her budget line shifts inward, reducing her purchasing power.

Gertrude Has a $15 Budget to Spend on Soda and Crackers.Soda