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A shift in income, holding everything else constant, will...

A. shift the budget constraint in a parallel fashion.
B. will shift and rotate the budget constraint
C. will rotate the budget constraint

User Sperick
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1 Answer

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Answer:

A. shift the budget constraint in a parallel fashion.

Step-by-step explanation:

Budget Line/ Constraint is graphical representation of product combinations that a consumer can buy, given product prices & income (all spent).

Income change will lead to parallel shift in budget constraint, because of equivalent proportional change in purchasing power of both goods.

If Income increases: the consumer can increase consumption of both goods with risen income, because of increased real income/ purchasing power due to price fall. This will shift budget constraint rightwards / outwards.

Similarly: Income decrease would decrease real income/ purchasing power for both the goods, enabling less consumption of both. This will shift budget constraint leftwards / inwards.

Both options B & C are inapt because : Budget Line Rotation occurs in case of price & purchasing power change only in one good or disproportionately in two goods.

User Sekky
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