Question

An increase in income:________. A. changes relative prices of goods the consumer buys. B. shifts the budget constraint outward. C. shifts the budget constraint inward. D. leads to the substitution effect.

Answer 1

Answer: B. shifts the budget constraint outward

Explanation:

An increase in the income of a consumer will bring about an outward shift of the budget constraint. This is because when the income of a consumer rises, such consumer can buy more goods and services.

Also, a decrease in income will result into an inward shift of the budget constraint. This is because lesser goods are purchased.