Answer to Question #318551 in Microeconomics for Peter

Question

Explain how will the increase in income affect the budget line for meat if you were to spend your income in these two goods meat and rice? Assume that you only spend the whole budget in buying meat

Answer 1

An increase in income will move the vertical intercept outward and not affect the slope of the line. Thus an increase in income will result in a parallel shift outward of the budget line.

In this case the extra budget goes to the meat and therefore the intercept of the rice remains unchanged as that of the mean shifts upwards.