Answer to Question #241722 in Microeconomics for boss

Question

True or False?

For choice sets emerging from “exogenous” income, the budget line will shift parallel whenever both prices change by the same percentage.

Answer 1

Solution:

False.

The budget line will remain the same or rotate to the left or right depending on which product the consumer prefer.

The budget line will shift parallel whenever a consumer’s income changes but the relative prices of both goods remain constant. If a consumer’s income increases, the budget line will move upwards but will still remain parallel to the original budget line. Similarly, if a consumer’s income decreases, the budget line will move downwards in parallel with the original budget line.