Question

Panel A CandyPopcorned Edit Coordinates (0,0) The image is a graph labeled Panel A that shows a shift in the optimum commodity bundle of a consumer who consumes candies and popcorn. The horizontal axis measures candies, and the vertical axis measures popcorn. There is a downward-sloping, linear line and a downward-sloping, convex curve that are tangent to each other at a point labeled d. There is a rotation of the budget line on the horizontal axis such that the new budget line has the same horizontal intercept as the initial one but a higher vertical intercept. The new budget line is tangent to a higher indifference curve at a point labeled e. Point e lies above and to the left of point d.

Panel B CandyPopcorngf Edit Coordinates (0,0) The image is a graph labeled Panel B that shows a shift in the optimum commodity bundle of a consumer who consumes candies and popcorn. The horizontal axis measures candies and the vertical axis measures popcorn. There is a downward-sloping, linear line and a downward-sloping, convex curve that are tangent to each other at a point labeled f. There is a parallel, outward shift of the budget line such that the new budget line has a higher vertical and horizontal intercept compared to the initial one. The new budget line is tangent to a higher indifference curve at a point labeled g. Point g lies above point f.

Panel C CandyPopcornkh Edit Coordinates (0,0) The image is a graph labeled Panel C that shows a shift in the optimum commodity bundle of a consumer who consumes candies and popcorn. The horizontal axis measures candies and the vertical axis measures popcorn. There is a downward-sloping, linear line and a downward-sloping, convex curve that are tangent to each other at a point labeled h. There is a rotation of the budget line on the vertical axis such that the new budget line has the same vertical intercept as the initial one but a higher horizontal intercept. The new budget line is tangent to a higher indifference curve at a point labeled k. Point k lies above and to the right of point h.

The above panels show various combinations of indifference curves and budget constraints for two​ products: Popcorn and Candy.

Refer to the diagrams above. A change in the price of candy only is shown in

A.

Panel

A.

B.

Panel

B.

C.

Panel

C.

D.

None of the above.

Answer 1

Option (C).

When there is increase (decrease) in income, keeping prices unchanged, budget line shifts outward (inward) in parallel direction. If only the price of the good along vertical (horizontal) axis changes, the budget line will have the same horizontal (vertical) intercept, but a different vertical (horizontal) axis intercept. Only in Panel C, budget line has a different intercept along the horizontal axis which depicts Candies.