Question

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in
A. A change in the slope of the budget line
B. No change of the budget line
C. Shift of the budget line inward to the left
D. Shift of the budget line outward to the right

Answer 1

Answer:

The correct answer is option C.

Explanation:

A budget line shows the maximum possible bundles of two goods that a consumer can afford by spending his whole income. Both the axes represent two different commodities and the consumer income and price of commodities are given.  

A decrease in income will decrease the purchasing power of the consumer. While the price of the two products remains the same, the consumer will be able to afford less quantity of both.  

This will cause the budget line to shift inward to the left.