When the price of two goods changed the Same time what would to happen the budget line?
Economics
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Answer
When the prices of two goods change at the same time, the budget line will shift, pivot, or both, depending on the direction and magnitude of the price changes for each good.
- If both prices increase: The budget line will shift inward, indicating a decrease in purchasing power.
- If both prices decrease: The budget line will shift outward, indicating an increase in purchasing power.
- If prices change disproportionately (e.g., one increases more than the other, or one increases while the other decreases): The budget line will pivot and potentially shift, as both its intercepts and its slope (which is the ratio of the prices) will change.
- If both prices change by the same proportion (e.g., both double): The budget line will shift inward (if prices increase) or outward (if prices decrease), but its slope will remain the same.
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