If both prices decreases by 50%Group of answer choicesbudget constraint will be unchanged.slope of the budget constraint will increase.slope of the budget constraint will decrease.budget constraint will shift outward in a parallel fashion.
Question
If both prices decreases by 50%Group of answer choicesbudget constraint will be unchanged.slope of the budget constraint will increase.slope of the budget constraint will decrease.budget constraint will shift outward in a parallel fashion.
Solution
The correct answer is "budget constraint will shift outward in a parallel fashion."
Here's why:
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The budget constraint represents all combinations of two goods that a consumer can afford given their income and the prices of the goods.
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If the prices of both goods decrease by the same percentage (in this case, 50%), the consumer can now afford more of both goods with the same income. This means that the budget constraint will shift outward, representing the increased purchasing power of the consumer's income.
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Because the prices of both goods have decreased by the same percentage, the slope of the budget constraint (which represents the trade-off between the two goods) remains the same. Therefore, the budget constraint shifts outward in a parallel fashion.
So, the correct answer is "budget constraint will shift outward in a parallel fashion."
Similar Questions
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