Question

If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price of good 1 will not change the horizontal intercept of the budget line. True False

Answer 1

False

Step-by-step explanation:

If the price of good 1 increases, then the price intercept will shift to the left (decrease towards origin). The horizontal intercept shows us the total amount of goods purchased if only good 1 is purchased. E.g. if good 1 originally cost $10 and the total budget is $100, the horizontal intercept will be 10. If the price of good 1 increases to $20, the horizontal intercept will be 5.