Question

If the price of the good measured on the horizontal axis increases, the budget line A) becomes steeper. B) shifts leftward and becomes steeper. C) shifts leftward and parallel to the original budget line. D) shifts rightward and parallel to the original budget line. E) becomes flatter.

Answer 1

The budget line becomes steeper if the price of the good on the horizontal axis increases, because it signifies that the good has become relatively more expensive, thus changing the rate at which it can be traded for the other good. So, the correct answer is option A) becomes steeper.

Step-by-step explanation:

If the price of the good measured on the horizontal axis increases, then the budget line will become steeper. This is because the slope of the budget line represents the rate at which one good can be traded for another based on their prices.

When the price of a good increases, it becomes more expensive relative to the other good, and therefore, fewer units of the price-increased good can be obtained for each unit of the other good, leading to a steeper budget constraint.

However, the question specifically asks about how the budget line shifts in response to a price change, not income changes. The options related to shifts in the budget constraint generally apply when income levels change, not when prices change. When discussing price changes and not income, the budget line does not shift leftward or rightward; it just changes its slope.

Therefore, the correct answer to the given question is option A) becomes steeper.