What will happen to the budget line when there is a decrease in prices of two goods say bread and milk?

Shift rightward parallelly

The correct answer is option 1: Shift rightward parallelly

The budget line represents all the possible combinations of two goods (bread and milk) that a consumer can purchase given their income and the prices of the goods.

When the prices of both goods decrease, but income remains constant, the consumer can buy more of both goods than before. This causes the budget line to shift outward (rightward) in a parallel manner, indicating an increase in purchasing power.

Let’s analyze the other options:

• Shift leftward parallelly is incorrect because a decrease in prices increases purchasing power, shifting the budget line outward, not inward.
• Shift rightward only for milk is incorrect because both goods have become cheaper, so the entire budget line shifts outward.
• Shift rightward only for bread is incorrect for the same reason—the price of both goods has decreased, so the entire budget line moves outward.