If the price of one good falls while income and the price of another good remain unchanged, the consumer's budget line usually:
Correct answer: A. Rotates outward toward the cheaper good
- A. Rotates outward toward the cheaper good
- B. Shifts outward parallel to itself
- C. Rotates inward away from the cheaper good
- D. Shifts inward parallel to itself
Explanation
A fall in one price increases the maximum amount of that good the consumer can buy, while the other intercept stays unchanged. Therefore, the budget line pivots outward rather than shifting parallel to itself.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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