The movement of the budget line from BB to bb in the figure suggests that income has
A) increased and the price of X has decreased.
B) fallen and the price of Y has increased.
C) fallen and the price of Y has decreased.
D) decreased, but there have been no price changes.

Question

The movement of the budget line from BB to bb in the figure suggests that income has 
A) increased and the price of X has decreased. 
B) fallen and the price of Y has increased. 
C) fallen and the price of Y has decreased. 
D) decreased, but there have been no price changes.

Quizplus · Accepted Answer

The movement of the budget line from BB to bb shows a decrease in income, as the line is shifting inward. This implies that the consumer can afford less of both goods X and Y than before. Additionally, the slope of the new budget line is steeper than the previous one, indicating that the relative price of Y has increased compared to X. Therefore, the correct answer is B, which states that income has fallen and the price of Y has increased.

The Movement of the Budget Line from BB to Bb