Asked by Lasha Petree on May 29, 2024
Verified
In year 1, the price of good x was $4, the price of good y was $1, and income was $70.In year 2, the price of x was $9, the price of good y was $2, and income was $70.On a graph with x on the horizontal axis and y on the vertical, the new budget line is
A) steeper than the old one and lies below it.
B) steeper than the old one and lies above it.
C) flatter than the old one and lies below it.
D) flatter than the old one and lies above it.
E) None of the above.
Budget Line
A visual depiction showing every potential pairing of two products that a specific budget can buy at predetermined prices.
Horizontal Axis
The x-axis in a graph, typically representing the independent variable or the quantity of goods in economic graphs.
Vertical Axis
In a graph or chart, the y-axis along which numerical data, typically representing a variable being measured, is plotted.
- Understand how changes in the price of goods and income affect the budget line on a graph.
Verified Answer
HL
Hailey LePageMay 31, 2024
Final Answer :
A
Explanation :
The new budget line is steeper because the price ratio of good x to good y has increased from 4:1 in year 1 to 9:2 in year 2. It lies below the old one because the same income now buys less of both goods due to the price increases.
Learning Objectives
- Understand how changes in the price of goods and income affect the budget line on a graph.