When the price of good x increases by 2 and the price of good y increases...

When the price of good x increases by 2 and the price of good y increases by 3, what happens to the slope of the budget constraint (does it get steeper/flatter/stay the same)? Please show your work.

Expert Solution

ANSWER-

The slope of budget line depends of the price of two goods. If good x in x-axis and y is on y-axis and good x becomes cheaper than good y the the slope of budget line gets steeper. If the good y becomes cheaper than good x than slope of budget gets flatter and price of good and good y change by same the slope reamine the same.

Given in question the price of good x increases by 2 and price of good y increases by 3 here good x is more cheaper than good y which means consumer will buy more of good x than good y so the slope of budget line will get steeper.

As shown in below image uploaded.

As the real income of the consumer is unchanged the price of good x increases by 2 and that of good y increases by 3 now the good x is cheaper than good y so in order to increase the consumption of good x the consumpltion of good y will be decreasesd which will move the budget line from BB to B1B1 (shown in above fig.) Which shows that when price of good x increases by 2 and price of good y increases by 3 the slope of budget line gets steeper.

Rahul Sunny answered 2 years ago

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