If the consumer's income and all prices simultaneously decrease by one-half,then
A)the optimum will shift outward relative to the old optimum.
B)the optimum will move leftward along the old budget constraint.
C)the optimum will shift inward relative to the old optimum.
D)the optimum will not change.

Question

Quizplus · Accepted Answer

When both income and prices decrease by half, the budget constraint will also shift outward by the same proportion. Therefore, the relative position of the optimum will not change, and the optimal bundle of goods will remain the same. Hence, the answer is D - the optimum will not change.

If the Consumer's Income and All Prices Simultaneously Decrease by One-Half,then