What factors contribute to a shift in the budget line?

The budget line will shift when there is:

  • A change in the prices of one or both products with nominal income (budget) remaining the same.
  • A change in the level of nominal income with the relative prices of the two products remaining the same.

What are the factors affecting budget line?

Position of the budget line depends on two factors namely, income of the consumer and prices of the two goods. If prices of two goods remain unchanged, then with an increase in income, budget line of the consumer shifts to the right and vice versa.

What would make a budget line shift to the left?

ADVERTISEMENTS: As a result, the budget line would have a rightward parallel shift from L1M1 to a new position like L2M2. Conversely, if the money income of the consumer decreases, prices remaining constant, the budget line would have a parallel shift to the left.

What do you mean by shift in budget line?

Shifts in Budget Line. The budget line is derived on the basis of the income of a consumer and the prices of commodities in the market. Any change in the consumer’s income or the prices of commodities would result in a change in the budget line. This phenomenon of change is called a shift in budget line.

What is the most likely cause of the change in her budget line?

What is the most likely cause of the change in her budget line? Airline flights got more expensive. Which of the following is a characteristic of monopolistic competition? Advertising increases the cost of production.

What are the different causes of shifting of budget line describe with diagram?

A budget line shows the maximum consumption of a consumer at a given income level. It shifts parallelly when there is a change in income but rotates when the relative prices change. A budget line is also called a budget constraint because it limits total consumption possibility of a consumer.

Why do budget constraints shift outwards?

The budget constraint pivots outward from the vertical axis to indicate more possibilities in toys. The slope or opportunity cost has changed. If the price of toys were to increase, the budget constraint would pivot inward from the vertical axis. The consumer could afford fewer toys and the same number of snacks.

In which case does the budget line not shift?

In case of budget line, slope = PX/PY As change in income does not disturb the price ratio of the two commodities, the slope will not change and the budget line, after change in income will remain parallel to the original budget line.

What is the effect of the changes in price on budget line?

Changes in Income and Shifts in Budget line:
Let BL be the initial budget line, given certain prices of goods and income. If consumer’s income increases while prices of both goods X and y remain unaltered, the price line shifts upward (say, to BL’) and is parallel to the original budget line BL.

When the shift of the budget line will not be parallel?

Option B is the correct answer. The shift of the budget lines will not be parallel if Price ratios vary. Suppose price of two goods and income of an individual is given. Any change in price of good X while price of good Y and income of the consumer remaining constant then there will be no parallel shift in budget line.

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

A change in income causes a parallel shift in budget constraint because as your income increases, so does the amount of goods you can buy, and the same if your income decreases. Income effects depend on the income elasticity of demand for each good that you buy.

What are the properties of a budget line?

Properties of budget line
Budget line is a straight line. Budget line has a negative slope. The slope of the budget line is negative of the price ratio. Budget line is tangent to indifference curve.

What is the other name of budget line?

The Budget line also known as the budget constraint indicates the combination of goods a consumer can purchase given his or her income and the prices in the market.

What is budget line What are the two features of budget line?

Definition: A budget line is a straight line that slopes downwards and consists of all the possible combinations of the two goods which a consumer can buy at a given market price by allocating all his/her income.

What is the importance of a budget line?

The slope of the budget limitation is particularly significant. Budget line in economics is based on two essential components – (a) purchasing power or the income of the consumer, and (b) market price of the two commodities that have been considered.

What causes a shift in indifference curve?

The income effect is the shift from C to B; that is, the reduction in buying power that causes a shift from the higher indifference curve to the lower indifference curve, with relative prices remaining unchanged. The income effect results in less consumed of both goods.

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

A change in income causes a parallel shift in budget constraint because as your income increases, so does the amount of goods you can buy, and the same if your income decreases. Income effects depend on the income elasticity of demand for each good that you buy.