The consumer’s income rises while the prices of both goods stay the same. Which of the following statements is NOT correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → The budget line becomes steeper.
A rise in income with prices unchanged moves the whole budget line outward, parallel to the old one. Its slope, −p1/p2, depends only on prices, so it does not change.
Option (1) The slope of the budget line stays the same. — True. Prices have not changed.
Option (2) The budget line shifts outward, parallel to the old line. — True. She can buy more of both goods.
Option (3) Both intercepts of the budget line increase. — True. Both intercepts, M/p1 and M/p2, rise with M.
Option (4) The budget line becomes steeper. — False. The line becomes steeper only when the price of the good on the horizontal axis rises.
NCERT (2026-27): “2.2.2 Changes in the Budget Set … Note that the slope of the new budget line is the same as the slope of the budget line prior to the change in the consumer’s income. However, the vertical intercept has changed after the change in income. If there is an increase in the income, i.e. if M' > M, the vertical as well as horizontal intercepts increase, there is a parallel outward shift of the budget line. If the income increases, the consumer can buy more of the goods at the prevailing market prices. …” |