The difference between a price increase and a decrease in income is that
A)A decrease in income does not affect the slope of the budget line while an increase in price does change the slope.
B)A price increase does not affect the consumption of other goods while a decrease in income does.
C)A price increase will increase real income while a decrease in income will increase real income.
D)None of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

A price increase will affect the slope of the budget line, as it will make the consumer able to buy less of the good. On the other hand, a decrease in income will not change the slope of the budget line but will shift it downwards, reducing the amount of goods that can be purchased at any price.

The Difference Between a Price Increase and a Decrease in Income