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

Question

Quizplus · Accepted Answer

If prices of both horizontal and vertical goods decrease by 50%, the consumer's purchasing power in real terms will increase by 100%. This means that the budget constraint will shift outward in a parallel fashion, as the consumer can now afford to purchase twice as much of both goods as before without changing their overall budget. The slope of the budget constraint, which represents the opportunity cost of purchasing one good in terms of the other, will remain the same.

If Prices of Both Horizontal and Vertical Goods Decrease by 50