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JAMB Economics 2002 Question 7

Question 7

Theory of Consumer Behaviour

If goods P and Q are purchased by a consumer, a fall in the price of P with the price of Q unchanged will cause the budget line to

  1. A.shift parallel inwards
  2. B.rotate outwards away from the origin
  3. C.rotate inwards towards the origin
  4. D.shift parallel outwards
Show the answer and explanation

Answer: B (rotate outwards away from the origin)

Explanation

The consumer can now buy more P with the same income, so the budget line pivots outwards on the P axis while its Q intercept stays fixed.