The figure above shows two budget lines.
-Based on the figure above,which of the following would lead the budget line to change from BL₀ to BL₁?
A) A rise in the price of water.
B) A fall in the price of water.
C) A rise in the price of water and the price of gum.
D) A decrease in the consumer's budget.
E) An increase in the consumer's budget.

Question

The figure above shows two budget lines.
-Based on the figure above,which of the following would lead the budget line to change from BL₀ to BL₁?
A) A rise in the price of water. 
B) A fall in the price of water. 
C) A rise in the price of water and the price of gum. 
D) A decrease in the consumer's budget. 
E) An increase in the consumer's budget.

Quizplus · Accepted Answer

The budget line is determined by the prices of the two goods and the consumer's budget. In this case, the only change shown in the options is a fall in the price of water, which would lead to an increase in the quantity of water that can be purchased with the same budget. This would cause the budget line to rotate outwards and change from BL₀ to BL₁.

The Figure Above Shows Two Budget Lines