An increase in the price of the good measured on the horizontal axis of a budget line diagram will
A)make the budget line flatter
B)make the budget line steeper
C)leave the budget line unchanged
D)cause a parallel inward shift of the budget line
E)cause a parallel outward shift of the budget line

Question

Quizplus · Accepted Answer

According to the Slope-Intercept form of the budget line equation

P_{x}X+P_{y}Y=M

where P_{x} is the price of good X, X is the quantity of X consumed, P_{y} is the price of good Y, Y is the quantity of Y consumed, and M is the budget constraint.

The slope of the budget line is -P_{x}/P_{y}. Therefore, an increase in the price of good X will increase the slope of the budget line (assuming the price of good Y remains constant). This means that the budget line will become steeper, and the consumer will be able to afford less of both goods at any given point on the line. Hence, the correct answer is B.

An Increase in the Price of the Good Measured on the Horizontal