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 consumer's income is $100.If PY increases to $20,then
A)the entire budget line shifts parallel to the left.
B)the budget line will rotate to the left with the slope changing from 1/2 to 1/4 (in absolute values).
C)the budget line will rotate to the left,slope remaining constant.
D)the budget line will rotate to the right with the slope changing from 1/4 to 1/2 (in absolute values).
E)the entire budget line shifts parallel to the right.

Question

Quizplus · Accepted Answer

When PY increases, the budget line rotates to the left because the consumer can now afford less of good Y for the same income. The slope changes from -PX/PY = -5/10 = -1/2 to -5/20 = -1/4.

Assume the Quantity of Good X Is Measured on the Horizontal