Asked by Kristen Phelps on Jul 29, 2024
Verified
With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.
Budget Line
A graphical representation of all possible combinations of two goods that can be purchased with a given budget at set prices.
Fixed Money Income
An income level that remains constant and does not adjust for inflation or economic conditions.
- Understand the importance of budget constraints in consumer decision-making.
- Comprehend the impact of price fluctuations and income variations on consumer decision-making and the optimization of satisfaction.
Verified Answer
MK
Marcel KrolczykAug 01, 2024
Final Answer :
True
Explanation :
When the price of one good increases and the price of the other decreases, the consumer's ability to purchase combinations of these goods changes, causing the budget line to pivot around a point, leading it to intersect the original budget line at some point. This reflects the new trade-offs and purchasing power with the fixed income.
Learning Objectives
- Understand the importance of budget constraints in consumer decision-making.
- Comprehend the impact of price fluctuations and income variations on consumer decision-making and the optimization of satisfaction.