Suppose that Andrew spends all of his income on good X and good Y. Then a...
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Suppose that Andrew spends all of his income on good X and good Y. Then a doubling of the price of both goods plus a tripling of his income will:
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Shift the budget line up and rotate it
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Shift the budget line down and rotate it
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Rotate the budget line but not shift it
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Shift the budget line up but not rotate it
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Homework Answers
Last option is correct
Because both the prices are doubled, the vertical intercept and the horizontal intercept both will be halved initially. This will shift the budget line down. Now the income is tripled which means overall the vertical and horizontal intercepts will shift by the same size. Hence the final impact will be an upward shift of the budget line but there is no rotation.
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