The quantities of Good M are plotted on the vertical axis while the quantities of Good N are plotted on the horizontal axis. The prices of both M and N fall. The intercepts of the budget line would
A) decline along both axes.
B) rise on the vertical axis and also rise on the horizontal axis.
C) rise on the horizontal axis but stay unchanged on the vertical axis.
D) rise on the vertical axis but stay unchanged along the horizontal axis.

Question

Quizplus · Accepted Answer

When the prices of both goods M and N fall, the consumer can afford to buy more of both goods with the same budget. This means that the intercepts of the budget line on both axes (which represent the maximum quantities of goods M and N that can be purchased if all the budget is spent on one good) will rise.

The Quantities of Good M Are Plotted on the Vertical