Question

why does a fall in proce of housing looks like this? why does it stays the same on the housing axis and changes on the food axis?

Dar prod/5a33ed4744755/4785892?response-content-disposition-inline%3B%20filename%2A%3DUTF-8 In the diagram below Franco is consuming bundle 1. Suppose that the price of Housing falls to p; <P, As a result Franco's budget line rotates out. The new bundle he chooses is C. What has caused Franco to change his choice of bundle? Two things have happened. More bundles are affordable than before, so Franco is better off. That is, he can achieve a higher indifference curve. We say his real income has risen. When his real income rises, Franco will want to increase his consumption of normal goods. This is called the income effect. IPH 11PF 1/P:

Answer 1

In this graph, the price of food has decreased, thus, now budget line has shifted to the right and now intercept also has shifted to the right along the horizontal line.

The new intercept is calculated by using the formula: Income / Price of Food.

When the price of food decreases, the value of the intercept automatically shifts to the right. thus, horizontally, the intercept has increased. it shows that now more quantity of food can be purchased with same level of income.

But vertically where housing has been shown, the price of house does not change, hence intercept will remain the same. or the same quantity of houses would be affordable if the whole income is spent on housing. There is no change in the price of housing.