Question

Fill in the blank: Assume there are two goods, rice and fish. If a household consumes both but does not produce either of the goods, a price decrease for rice leads to a __________ of the budget line.

Group of answer choices

Outward rotation, no change for the intercept of the axis of fish

Outward rotation, no change for the intercept of the axis of rice

Parallel shift inward

Parallel shift outward

Answer 1

Ans. Outward rotation, no change for the intercept of the axis of fish

A decrease in price for rice leads to an outward shift of the budget line and no change in the intercept of the axis of fish because a fall in price for rice leads to more quantity rice a household can consume when income is given while no change in the price of fish, then the slope of the budget line changes and the intercept for rice shifts outward which shows the more units of rice demanded.

When income changes and the price of both goods ( i.e. rice and fish) and the slope of the budget line remain constant, the budget line shifts parallel.