Assume the graph shown represents Dana's budget constraint.If Dana's income to spend on these two items decreased,which of the following could be said?
A) Dana will buy more hairbands now because they are relatively less expensive.
B) Dana will be able to buy less of both goods.
C) Dana will derive more utility from each item, because she values each one more now that she's poorer.
D) All of these are true.

Question

Assume the graph shown represents Dana's budget constraint.If Dana's income to spend on these two items decreased,which of the following could be said?
A) Dana will buy more hairbands now because they are relatively less expensive. 
B) Dana will be able to buy less of both goods. 
C) Dana will derive more utility from each item, because she values each one more now that she's poorer. 
D) All of these are true.

Quizplus · Accepted Answer

A decrease in income will cause Dana's budget constraint to shift inward, which means she will have less money to spend on hairbands and bracelets. This will result in a decrease in quantity demanded for both goods. Option A is incorrect because hairbands are not necessarily less expensive; their relative price has not changed. Option C is incorrect because a decrease in income will not make Dana value each item more.

Assume the Graph Shown Represents Dana's Budget Constraint