The budget line swings from AB to AC as shown. What has happened? Two budget lines from the same point, 10 units of good 2. AB ends at 20 units of good 1 and AC ends at 25 units of good 1.

The budget line swings from AB to AC as…

The budget line swings from AB to AC as shown.

Question 21

MediumOriginal question

The budget line swings from AB to AC as shown. What has happened?

Two budget lines from the same point, 10 units of good 2. AB ends at 20 units of good 1 and AC ends at 25 units of good 1.

The price of good 1 has fallenCorrect answerYour answerThe price of good 2 has fallenCorrect answerYour answerIncome has risenCorrect answerYour answerThe price of good 1 has risenCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

The good-2 intercept (10) is unchanged, so income and P₂ are unchanged.
The good-1 intercept rises from 20 to 25, so more of good 1 can be bought: P₁ has fallen.

Concept: Rotation from a price 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 swings from AB to AC as shown.

Question 21

Explanation