Question 2If the price of the good on the vertical axis risesa. there will be a parallel shift inward of the budget line.b. there will be a parallel shift outward of the budget line.c. the budget line will become flatter.d. the budget line will become steeper.

Budget line shift because of change in the level of consumer income. And it become steeper or…

Answered: If the price of the good on the…

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Economics

If the price of the good on the vertical axis rises

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section21.1: The Budget Constraint: What The Consumer Can Afford

Problem 1QQ

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Question 4A consumer has income of $15,000. Pillows costs $35 per pillow, and soda costs $70 per bottle.a. Draw the consumer's budget constraint (put pillow on the horizontal axis). What is the slope of this budget constraint?b. Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both pillows and soda are normal goods.c. The price of pillows rises from $35 to $40 per pillow, while the price of sodas is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects.d. A. Under what circumstance(s) if any can an increase in the price of pillows induce a consumer to buy more of that good? Explain.e. B. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.
Figure #6 Quantity of Food (Y) Yr Yc X XA X Duantity.cfClathes (X)
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