Use the following to answer questions :
Figure 5A-2
-In Figure 5A-2, starting from the budget constraint AC, if both income and prices are doubled, the household's budget constraint would shift out to EF, and the household could attain a utility level of U(4).

Question

Use the following to answer questions :
Figure 5A-2 
-In Figure 5A-2, starting from the budget constraint AC, if both income and prices are doubled, the household's budget constraint would shift out to EF, and the household could attain a utility level of U(4).

Quizplus · Accepted Answer

Doubling both income and prices leaves the budget constraint unchanged, as the relative prices of goods and the household's real income remain the same. The budget constraint would not shift to EF simply due to these changes.

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