Final answer:
An increase in income and a decrease in prices could have shifted Kevin's budget constraint from BC1 to BC2, as both would allow for higher consumption levels of goods due to increased purchasing power and affordability.
Step-by-step explanation:
To determine which factors could have shifted Kevin's budget constraint from BC1 to BC2, we must consider how changes in income and prices affect consumption choices.
An increase in income typically shifts the budget constraint to the right because it allows consumers to afford a higher quantity of normal goods, indicating a higher level of utility.
Conversely, a decrease in income would shift the budget constraint to the left, as it would lower the level of utility due to the reduced purchasing power.
On the other hand, a decrease in prices will also shift the budget constraint outward to the right as it increases the quantity of goods that can be purchased with the same income.
However, an increase in prices has the opposite effect; it will cause the budget constraint to rotate inwards from the axis of the good that became more expensive, as consumers will be able to afford less of that good with the same level of income.
In the context of Kevin's budget constraint shifting from BC1 to BC2, the scenarios that could cause such a shift include:
Therefore, options (a) Increase in income and (b) Decrease in prices are the correct choices that could have shifted Kevin's budget constraint from BC1 to BC2.