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Draw a consumers budget line and call it RN. On the X axis place good X...

Draw a consumers budget line and call it RN. On the X axis place good X and on the Y axis place good Y. Place a point on this budget line where the consumer decides to consume and call it E. Now assume that there is a decrease in the price of good X. How does the budget line shift? Where does the consumer consume now

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Answer #1

The initial budget line is RN

As a result of a decrease in the price of good X,the budget line for good X will shift to the right as the consumer will be able to increase his consumption for good X given the price decrease.The new budget line is RM and the consumer consumption is now E2.

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