Questions: Question 23 Given the following budget constraints, where units of good 1 are measured on the horizontal axis and units of good 2 are measured on the vertical axis. A first budget line is provided and is labeled B1. It has a horizontal intercept defined by the ordered pair (100,0) and a vertical intercept defined by the ordered pair (0,100). Shifted to the left of the first budget line, a second budget line is provided and is labeled B2. This second budget line has a horizontal intercept defined by the ordered pair (100,0) and a vertical intercept defined by the ordered pair (0,50). Question: What explains the change in the budget constraint from B1 to B2? Preferences for good 2 decreased Preferences for good 1 increased The price of good 2 decreased Income decreased The price of good 1 increased The price of good 1 decreased Income increased The price of good 2 increased

Question 23
Given the following budget constraints, where units of good 1 are measured on the horizontal axis and units of good 2 are measured on the vertical axis. A first budget line is provided and is labeled B1. It has a horizontal intercept defined by the ordered pair (100,0) and a vertical intercept defined by the ordered pair (0,100). Shifted to the left of the first budget line, a second budget line is provided and is labeled B2. This second budget line has a horizontal intercept defined by the ordered pair (100,0) and a vertical intercept defined by the ordered pair (0,50).

Question: What explains the change in the budget constraint from B1 to B2?
Preferences for good 2 decreased
Preferences for good 1 increased
The price of good 2 decreased
Income decreased
The price of good 1 increased
The price of good 1 decreased
Income increased
The price of good 2 increased

Transcript text: Question 23 Given the following budget constraints, where units of good 1 are measured on the horizontal axis and units of good 2 are measured on the vertical axis. A first budget line is provided and is labeled $\mathrm{B}_{1}$. It has a horizontal intercept defined by the ordered pair $(100,0)$ and a vertical intercept defined by the ordered pair $(0,100)$. Shifted to the left of the first budget line, a second budget line is provided and is labeled $\mathrm{B}_{2}$. This second budget line has a horizontal intercept defined by the ordered pair $(100,0)$ and a vertical intercept defined by the ordered pair $(0,50)$. Question: What explains the change in the budget constraint from $B_{1}$ to $B_{2}$ ? Preferences for good 2 decreased Preferences for good 1 increased The price of good 2 decreased Income decreased The price of good 1 increased The price of good 1 decreased Income increased The price of good 2 increased

Solution

Solution Steps

Step 1: Understanding the Budget Constraints

The graph shows two budget constraints, B1 and B2. The horizontal axis represents units of good 1, and the vertical axis represents units of good 2. B1 has a horizontal intercept at 100 units of good 1 and a vertical intercept at 50 units of good 2. B2 has a horizontal intercept at 100 units of good 1 and a vertical intercept at 100 units of good 2.

Step 2: Analyzing the Shift in the Budget Constraint

The shift from B1 to B2 indicates that the consumer can now afford more of good 2 while the maximum quantity of good 1 remains the same. This suggests a change in the price of good 2 or a change in income.

Step 3: Identifying the Cause of the Shift

Since the horizontal intercept (good 1) remains unchanged, the price of good 1 has not changed. The vertical intercept (good 2) has doubled, indicating that the consumer can now afford twice as much of good 2 with the same amount of income. This suggests that the price of good 2 has decreased.

Final Answer

The price of good 2 decreased.

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