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 budget line will rotate to the left across the horizontal axis, slope remaining constant.
B) the entire budget line shifts to the left with its slope changing from 1/2 to 1/4 (in absolute values).
C) the entire budget line will shift to the right.
D) the budget line will rotate to the right down the horizontal axis with the slope changing from 1/4 to 1/2 (in absolute values).
E) the budget line will rotate to the left down the vertical axis with the slope changing from 1/2 to 1/4 (in absolute values).

Question

Quizplus · Accepted Answer

When PY increases, the budget line rotates inward (to the left) down the vertical axis, as the consumer can now afford less of good Y. The slope changes from 1/2 to 1/4 in absolute value, reflecting the change in relative prices.

Assume the Quantity of Good X Is Measured on the Horizontal