Suppose a consumer purchases two goods, A and B , and that the price of A doubles, the consumer's income doubles, and the price of B remains unchanged. If good A is plotted on the horizontal axis, the budget line
A) will remain unchanged.
B) will become steeper.
C) will become flatter.
D) will shift out from the origin parallel to the original budget line.

Question

Quizplus · Accepted Answer

When the price of good A doubles and the income doubles, the consumer will have the same amount of income to allocate to both goods A and B. Since good A is more expensive, the consumer will be able to afford to purchase less of it, and more of good B. This means that the budget line will rotate inward from the y-intercept (representing good B) and become steeper, as the consumer has to give up more good B to purchase the same amount of good A as before.

Suppose a Consumer Purchases Two Goods, a and B