The budget line moves from AB to CD as shown. Prices are ₹5 for good 1 and ₹10 for good 2. What has happened to income? Two parallel budget lines. AB runs from 10 units of good 2 to 20 units of good 1; CD runs from 15 units of good 2 to 30 units of good 1. An arrow points from AB to CD.

The budget line moves from AB to CD as…

The budget line moves from AB to CD as shown.

Question 20

MediumOriginal question

The budget line moves from AB to CD as shown. Prices are ₹5 for good 1 and ₹10 for good 2. What has happened to income?

It has risen from ₹100 to ₹300Correct answerYour answerIt has fallen from ₹150 to ₹100Correct answerYour answerIt has risen from ₹100 to ₹150Correct answerYour answerIt is unchanged; prices have fallenCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

Old income = 20 × ₹5 = ₹100 (or 10 × ₹10). New income = 30 × ₹5 = ₹150 (or 15 × ₹10).
A parallel outward shift with prices given means income rose.

Concept: Reading an income change
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsWhen income or prices change

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

The budget line moves from AB to CD as shown.

Question 20

Explanation