The difference between a price decrease and an increase in income is that
A) A price decrease does not affect the consumption of other goods, while an increase in income does.
B) An increase in income does not affect the slope of the budget line, while a decrease in price does change the slope.
C) A price decrease decreases real income, while an increase in income increases real income.
D) A price decrease leaves real income unchanged, while an increase in income increases real income.

Question

Quizplus · Accepted Answer

An increase in income shifts the budget line outward without changing its slope, indicating the consumer can afford more of all goods. A price decrease changes the slope of the budget line, reflecting a change in the relative price of goods, making one good cheaper relative to others.

The Difference Between a Price Decrease and an Increase in Income