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Chapter 6: Q.12RQ (page 152)

Why does a change in income cause a parallel shift in the budget constraint?

Short Answer

Expert verified

The budget constraint shift in a parallel way because the purchasing power of the both the goods increases simultaneously.

Step by step solution

01

Step 1. Introduction:

A budget constraint, also known as a budget line, depicts the potential bundles of two commodities that are affordable provided a customer's limited revenue.

02

Step 2. Explanation:

A modification in income can result in a parallel shift in budget constraints because as income rises, it becomes convenient to acquire additional goods as the individual's purchasing power rises. The more revenue one has, the more they buy. In contrast, when income falls, we see a reduction in the number of goods or services acquired.

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