Assume There Is a Budget Line with Bagels on the Vertical

question 328

Multiple Choice

Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels falls and the price of bananas rises?

• A) There is a parallel outward shift of the budget line.
• B) There is a parallel inward shift of the budget line.
• C) The budget line changes to have a steeper slope.
• D) The budget line changes to have a flatter slope.

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Definitions:

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium for a good or a service is not achieved or is not achievable, leading to a suboptimal allocation of resources.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the price where supply and demand are equal.

Tax

An unavoidable fiscal exaction or different type of contribution enforced by a governmental faction on a taxpayer, intended to support the financing of governmental operations and a range of public service outlays.

Tax Revenue

The income governments procure through the levy of taxes.