The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?
A)a decrease in the price of X
B)an increase in the price of Y
C)a decrease in the price of Y
D)More than one of the above could explain this change.

Question

The following diagram shows two budget lines: A and B.  Which of the following could explain the change in the budget line from A to B?
A)a decrease in the price of X 
B)an increase in the price of Y 
C)a decrease in the price of Y 
D)More than one of the above could explain this change.

Quizplus · Accepted Answer

A decrease in the price of Y would increase the purchasing power of the consumer, allowing them to buy more of both X and Y at the same income level. This would result in a parallel shift outward of the budget line from A to B. An increase in the price of Y (option B) would result in a shift inward of the budget line, while a decrease in the price of X (option A) would result in a rotation of the budget line towards the X-axis. Therefore, option C is the best choice as it is the only one that aligns with the observed change in the diagram.

The Following Diagram Shows Two Budget Lines: a and B