If the price of good X (measured on the horizontal axis of a budget line diagram)increases at the same time that the price of good Y (measured on the vertical axis)increases,the budget line
A)will necessarily become steeper
B)will necessarily become flatter
C)will remain unchanged
D)will shift outward in a parallel fashion
E)could become either steeper or flatter,depending on the sizes of the price changes

Question

Quizplus · Accepted Answer

When the price of good X increases at the same time the price of good Y increases, the budget line may become either steeper or flatter. It depends on the ratio of the price changes.

For example, if the price of X doubles while the price of Y increases by only 10%, the budget line will become steeper, as the relative price of X compared to Y has increased. On the other hand, if the price of X increases by only 10% while the price of Y doubles, the budget line will become flatter, as the relative price of Y compared to X has increased.

Thus, the answer is E, as the change in the slope of the budget line depends on the relative size of the price changes for X and Y.

If the Price of Good X (Measured on the Horizontal