An increase in income, holding prices constant, can be represented as A. a change in the slope of the budget line. B. a parallel outward shift in the budget line. C. an outward shift in the budget line with its slope becoming flatter. D. a parallel inward shift in the budget line.

Question

Business

Cristian Walker

1 January, 17:14

An increase in income, holding prices constant, can be represented as A. a change in the slope of the budget line. B. a parallel outward shift in the budget line. C. an outward shift in the budget line with its slope becoming flatter. D. a parallel inward shift in the budget line.

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Answers (1)

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Trace · Answer 1

Option (B) is correct.

Explanation:

If there is an increase in the income of the consumer then as a result there is a parallel shift in the budget line. This increase in income will increase the real purchasing power of the consumers and hence, this would increase the quantity of two goods consumed in an equal proportion.

Other factors remains the same, an increase in the income level of the consumer will increase the consumption of both the goods because the prices of both the goods are constant.