Suppose initially that the price of X is $5,the price of Y is $10,and the consumer's income is $100.If Y is measured on the vertical axis,X is measured on the horizontal axis,and the price of Y increases to $20:
A)the entire budget line will shift inward toward the origin,with its slope changing from -1/2 to -1/4.
B)the budget line will pivot inward toward the origin along the X axis,with its slope changing from -1/2 to -1/4.
C)the budget line will pivot inward toward the origin along the Y axis,with the slope changing from -1/2 to -1/4.
D)the budget line will pivot inward toward the origin along the Y axis,with the slope changing from -1/4 to -1/2.

Question

Quizplus · Accepted Answer

When the price of Y increases, the budget line will pivot inward toward the origin along the Y axis, as the consumer can now afford fewer units of Y with their income. The slope of the budget line will change from -1/2 to -1/4 because the relative prices of X and Y have changed (X is still $5, while Y has increased to $20). This means that the opportunity cost of consuming X has decreased, so the consumer will now be willing to give up fewer units of Y for each additional unit of X consumed.

Suppose Initially That the Price of X Is $5,the Price