Question on: JAMB Economics - 2002
If goods P and Q are purchased by a consumer, a fall in the price P with the price Q unchanged will cause the budget line to
A
shift parallel inwards
B
rotate outwards away from the origin
C
rotate inwards towards the origin.
D
shift parallel outwards
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Correct Option: C
A fall in the price of good P, while the price of good Q remains constant, will affect the consumer's purchasing power and the budget line. Here's the breakdown:
* **Budget Line:** The budget line represents all the combinations of two goods that a consumer can afford given their income and the prices of the goods.
* **Price Change of P:** When the price of good P falls, the consumer can now afford more of good P with the same amount of money. This effectively increases the consumer's purchasing power for good P.
* **Impact on the Budget Line:**
* The point where the budget line intersects the P-axis (where only good P is purchased) will shift outwards (further from the origin). This is because the consumer can buy more of P.
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