Explain how changes in the price of goods and the consumer's budget affect the budget line
What will be an ideal response?
If the price of the good measured on the x-axis increases, the budget line rotates inward as the x-intercept decreases and the budget line becomes steeper. Conversely, if the price of the good measured on the x-axis decreases, the budget line rotates outward, the x-intercept increases, and the budget line becomes flatter.
If the price of the good measured on the y-axis increases, the y-intercept decreases as the budget line rotates inward and becomes flatter. However, if the price of the good measured on the y-axis decreases, the budget line rotates outward as the y-intercept increases, and the budget line becomes steeper.
Finally, if the budget increases, the budget line shifts outward (both intercepts increase) and the slope remains unchanged while if the budget decreases, the budget line shifts inward (both intercepts decrease), and the slope remains unchanged.
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