When the price of a good changes,the total effect of the price change on the quantities purchased can be found by comparing the quantities purchased
A)on the old budget line and the new budget line.
B)on the original indifference curve when faced with the original prices and when faced with the new prices.
C)on the new budget line and a hypothetical budget line that is a parallel shift back to the original indifference curve.
D)on the new indifference curve.

Question

Quizplus · Accepted Answer

When the price of a good changes, the budget line shifts. The new budget line is created by finding the maximum quantity of the two goods that can be purchased with the new budget at the new prices. By comparing the quantities purchased on the old budget line (with the original prices) and the new budget line (with the new prices), we can determine the total effect of the price change on the quantities purchased. Therefore, the best choice is A.

When the Price of a Good Changes,the Total Effect of the Price