Answer to Question #269562 in Microeconomics for Katie

Question

Graph the following budget lines:

a) 10 F + 20 C = 400

b) 5 F + 10 C = 400

c) 10 F + 10 C = 400

d) 20 F + 20 C = 400

Compare a) to b), a) to c), and a) to d). Which comparisons represent income changes and which represent price changes

Answer 1

Solution:

1.). The budget lines graphs are as follows:

 

 

 

2.). The budget lines for a and b represent price changes due to the inward and outward rotation of the budget lines.

The budget lines for c and d represent income changes due to the parallel shift of the budget lines outwards and downwards. An outward shift represents an increase in income, and inwards represents a decrease in income.