If prices of both horizontal and vertical goods increase by 50%,
A)budget constraint will be unchanged.
B)slope of the budget constraint stay the same.
C)slope of the budget constraint will decrease.
D)budget constraint will shift outward in a parallel fashion.

Question

Quizplus · Accepted Answer

When both prices increase by the same percentage, the slope of the budget constraint, which is determined by the ratio of the prices of the two goods, remains unchanged. The slope is the price of one good divided by the price of the other, so if both prices increase by 50%, the ratio (and thus the slope) does not change.

If Prices of Both Horizontal and Vertical Goods Increase by 50