If the prices of two goods,X and Y,increase by 50 percent and the consumer's income rises by 100 percent:
A)the slope of the consumer's budget line will change,becoming flatter to indicate that X and Y are now relatively less expensive.
B)the consumer's budget line will shift out from the origin,with its slope unchanged.
C)the consumer's budget line will shift out from the origin and its slope will also change,reflecting the lower prices for X and Y.
D)the consumer's budget line will remain unchanged as the price and income effects will cancel each other out.

Question

Quizplus · Accepted Answer

The consumer's budget line will shift outward from the origin because the increase in income allows the consumer to afford more of both goods. However, since the prices of both goods increase by the same percentage, the relative price between X and Y remains unchanged, meaning the slope of the budget line stays the same.

If the Prices of Two Goods,X and Y,increase by 50