-Lizzie's budget line is shown in the figure above. If the price of a cookie rises, Lizzie's real income in terms of cookies ________ and her real income in terms of magazines ________.
A) decreases; increases
B) increases; decreases
C) decreases; does not change
D) increases; does not change

Question

-Lizzie's budget line is shown in the figure above. If the price of a cookie rises, Lizzie's real income in terms of cookies ________ and her real income in terms of magazines ________.
A) decreases; increases 
B) increases; decreases 
C) decreases; does not change 
D) increases; does not change

Quizplus · Accepted Answer

When the price of a cookie rises, Lizzie can afford fewer cookies with the same amount of money, so her real income in terms of cookies decreases. However, her real income in terms of magazines does not change because the price of magazines remains the same.

-Lizzie's Budget Line Is Shown in the Figure Above