The diagram below shows a set of budget lines facing a household. FIGURE 6-8
-Refer to Figure 6-8.The movement of the budget line from ab to ef could be caused by
A)a decrease in real income.
B)an increase in money income.
C)an equal percentage increase in the price of both food and housing.
D)a decrease in the price of either food or housing.
E)an increase in the price of either food or housing.

Question

The diagram below shows a set of budget lines facing a household.  FIGURE 6-8
-Refer to Figure 6-8.The movement of the budget line from ab to ef could be caused by
A)a decrease in real income. 
B)an increase in money income. 
C)an equal percentage increase in the price of both food and housing. 
D)a decrease in the price of either food or housing. 
E)an increase in the price of either food or housing.

Quizplus · Accepted Answer

The movement of the budget line from ab to ef indicates an increase in the household's money income, which shifts the budget line outward. Option A is incorrect because a decrease in real income would shift the budget line inward. Option C is incorrect because an equal percentage increase in the price of both goods would cause a rotation of the budget line, not a shift. Option D is incorrect because a decrease in the price of either good would cause a parallel shift of the budget line, not a rotation. Option E is incorrect because an increase in the price of either good would cause a parallel shift of the budget line, not a rotation.

The Diagram Below Shows a Set of Budget Lines Facing