The following figure shows a consumer's budget constraint for jeans and sweaters.

-Refer to the figure above.Suppose B₁ is the original budget constraint of a consumer.A change in the budget constraint from B₁ to B₂ indicates ________.
A) an increase in the price of sweaters
B) a decrease in the price of sweaters
C) an increase in the consumer's income
D) a decrease in the consumer's income.

Question

The following figure shows a consumer's budget constraint for jeans and sweaters.
 
-Refer to the figure above.Suppose B₁ is the original budget constraint of a consumer.A change in the budget constraint from B₁ to B₂ indicates ________.
A) an increase in the price of sweaters 
B) a decrease in the price of sweaters 
C) an increase in the consumer's income 
D) a decrease in the consumer's income.

Quizplus · Accepted Answer

A change in the budget constraint from B₁ to B₂ indicates a decrease in the price of sweaters. This is because the budget constraint has shifted outward and become flatter, which means the consumer can buy more sweaters at the same price. If the price of sweaters had increased, the budget constraint would have shifted inward, and if there were changes in income, the budget constraint would have shifted altogether.

The Following Figure Shows a Consumer's Budget Constraint for Jeans