Chapter 1. eFigure 5.1

Animated Graph
A Consumer's Indifference Curves
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You must read each slide, and complete any questions on the slide, in sequence.
Question 1 of 3

Question 1.

Why does an increase in income lead to a parallel shift of the budget constraint?

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Correct! The slope of the budget constraint is equal to the ratio of the price of the two goods. In this problem neither of the prices changed. The only change observed is an increase in Evan’s income. Accordingly, the ratio of prices is unchanged, as is the slope of the budget constraint. The change in Evan’s income will, however, change the amount of each good that he can afford, so the intercepts on each of the axis will increase.
Incorrect! The slope of the budget constraint is equal to the ratio of the price of the two goods. In this problem neither of the prices changed. The only change observed is an increase in Evan’s income. Accordingly, the ratio of prices is unchanged, as is the slope of the budget constraint. The change in Evan’s income will, however, change the amount of each good that he can afford, so the intercepts on each of the axis will increase.