Answer to Question #261807 in Economics for Zara

Question

A consumer has been consuming good 'x' and good 'y'. The two goods are substitutes. With an aid of a diagram, describe how the budget line behaves when the price of good 'x' increases

Answer 1

If the price of good 'x' increases, then the quantity of good x consumed will decrease, and the quantity of good y consumed will increase. As a result the intersection point of the budget line with Qx axis will decrease, and the intersection point of the budget line with Qy axis will increase.