Question

Suppose that the price of good x is cut in half, and income doubles, while the price of good y remains constant. If the budget line is drawn with x on the horizontal axis and y on the vertical axis, then the new budget line becomes:

A. Flatter
B. Steeper
C. Shift inward (and remains parallel to the initial budget line).
D. Remain the same

Answer 1

If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis, and

if the price of good 1 is p1 and the price of good 2 is p2; then the slope of the budget line is p2/p1.

let initially the slope be y/x. now it is 3y/2x. therefore m'=3/2*m, i.e slope increases. hence line becomes steeper.