If a household's income falls by 10%, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.

Question

Quizplus · Accepted Answer

When a household's income decreases, its budget constraint shifts inward parallel to the old one because the household can now afford less of both goods, assuming prices remain constant.

If a Household's Income Falls by 10%, Its Budget Constraint