Home

What is the correct answer?

4

When the income of consumer increases then budget line will:

A. Get steeper

B. Shift parallel to right

C. To get flatter

D. To shift upward

Correct Answer :

B. Shift parallel to right


{Shown in below diagram}

The effect on the demand for a product as a result of an increase in income can also be analyzed using indifference curve analysis. An increase in income shifts the budget line out parallel. The relative prices of the products have not changed so the gradient of the budget line is the same; income has increased so the budget line has shifted outwards as more of the products can be purchased. The new combinations of products that maximize utility can be identified; from this the impact of income changes on the demand for a product can be analyzed. In the diagram above on the left B is a normal good. An increase in income increases the quantity demanded.

Related Questions

If a firm produces zero output in the short period then which statement… In the range of excess capacity, the average costs are: When the slope of a demand curve is zero (also known as vertical demand… The elliptical isoquant represents the: Microeconomics deals with the: In monopolistic competition, the customers are attached with one product… When total revenue is maximum in monopoly, elasticity of demand is: At the shut-down point in perfect competition: Which is the other name that is given to the average revenue curve? The fixed cost of a firm: The production techniques are technically efficient: The elasticity of substitution measures the percentage change in the ratio… With the change in the factor prices, the slope of the expansion path… In 1932, The nature and significance of economic science was written by: Rent is a creation of value, not of wealth who made this observation? A monopolist has control over the price he charges for his product. He… The short-run periods in monopolistic competition are: Elasticity of demand is equal to unity while marginal revenue is: When total revenue (TR) falls in monopoly then elasticity of demand is: Total utility and price are: In constant sum game (zero sum game), if there are two parties then: Who is the author of Problems of Capital Formation in Underdeveloped Countries? The standard form of demand function is: In finding equilibrium position of a profitmaximizing firm, which technique… An iso-product (an isoquant) curve slopes: According to critics, the assumption of costless production is: Marginal Productivity Theory deals with the theory of: In cournot model, each firm expects a reaction from his rival but the… If the factors have to be employed in a fixed ratio, then the elasticity… Total costs are: