Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.
-Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?
A)graph a
B)graph b
C)graph c
D)graph d

Question

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?
A)graph a 
B)graph b 
C)graph c 
D)graph d

Quizplus · Accepted Answer

In graph b, the slope of the budget constraint becomes flatter, indicating an increase in purchasing power. This can be caused by a decrease in the price of good X, which is the only factor that affects the slope of the budget constraint. In graphs a, c, and d, the movement from BC-1 to BC-2 is caused by a change in income or price of both goods X and Y, making it impossible to isolate the effect of a change in the price of good X.

Figure 21-3 in Each Case, the Budget Constraint Moves from BC-1 to BC-1