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 preceding statements is correct.

Question

Quizplus · Accepted Answer

A decrease in income will shift the budget line inward but will not change the slope, while a price increase will change the slope of the budget line. A price increase affects the price of a specific good, but a decrease in income affects all goods, leading to a shift in the budget line.

The Difference Between a Price Increase and a Decrease in Income