Suppose leisure is on the horizontal axis and dollars are on the vertical axis in the consumer-choice diagram.What happens to the budget line when a head tax is imposed?
A) The budget line shifts inward,but it may become steeper or flatter depending on the size of the head tax.
B) The budget line pivots about the horizontal intercept,becoming steeper.
C) The budget line become flatter,with the vertical intercept falling and the horizontal intercept remaining fixed.
D) There is an inward,parallel shift in the budget line.

Question

Quizplus · Accepted Answer

When a head tax is imposed, it reduces the amount of money available to the consumer to spend on both leisure and other goods. This leads to a parallel inward shift of the budget line, because the ratio of the price of leisure to the price of other goods remains the same. The size of the shift depends on the size of the head tax, but the slope of the budget line and the intercepts do not change.

Suppose Leisure Is on the Horizontal Axis and Dollars Are