Assume the quantity of good X is measured on the horizontal axis and the quantity of good Y on the vertical axis.Initial prices are PX = $5 and PY = $10.The consumerʹs income is $100.If PY increases to $20,then
A)the entire budget line shifts parallel toward the origin.
B)the budget line will rotate toward the origin,slope remaining constant.
C)the budget line will rotate toward the origin with the slope changing from 1/2 to 1/4 (in absolute values).
D)the entire budget line shifts parallel away from the origin.
E)the budget line will rotate away from the origin with the slope changing from 1/4 to 1/2 (in absolute values).

Question

Quizplus · Accepted Answer

The budget line will rotate toward the origin because the price of good Y increases, making it more expensive relative to good X. This changes the slope of the budget line, reflecting the new price ratio between good X and good Y. Initially, the slope was -PX/PY = -5/10 = -1/2, and after the price increase, it becomes -PX/PY = -5/20 = -1/4.

Assume the Quantity of Good X Is Measured on the Horizontal