What happens to the budget line if both income and prices double simultaneously?

Multiple choice question for Consumer Theory vs. Real Consumers. Select an option, then review the explanation below.

Explanation

When income and all prices double at the same time, the consumer's purchasing power relative to prices remains constant, so the budget line does not shift or rotate and thus stays the same.

Practice related questions from the same subject.

1.Assuming that consumption during youth and old age are both normal goods, how does a rise in the interest rate affect the amount saved?
2.Based on Exhibit 4, assume a consumer has €100 to spend and must decide between purchasing socks or belts. How would you classify a pair of socks in this scenario?
3.Refer to Exhibit 4. Assume a consumer is deciding between purchasing socks and belts, with an income of €100. If the price of socks decreases from €5 to €2 per pair, which movement illustrates the substitution effect?
4.When a rise in a consumer's income leads to a reduction in the amount of a product they buy, how is this product classified?
5.Consider a graph where the quantity of good X is represented on the x-axis and the quantity of good Y on the y-axis. If the indifference curves are concave toward the origin, how does the marginal rate of substitution of good Y for good X (the slope of the indifference curve) change as we move from a situation with a large amount of good X to one with a large amount of good Y?

What happens to the budget line if both income and prices double simultaneously?

Explanation

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