Question

Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6, respectively, and money income increases to $120, then the budget line will ___

Answer 1

The budget line will remain unchanged.

Explanation:

A budget line helps in showing the possible combinations of two commodities.

We can find the slope of the budget line that is also called the price ratio between two things. If we get a straight line, we say the slope is constant.

Here in the question its given that the initial constraints are (3,15) with initial income of $60. Then the price increases and constraints become (6,30) with an increase in income up to $120.

Therefore, the budget line will not be affected and remain unchanged as each constraint is doubling and the slope will be constant.