Question

George has a weekly income (I) of $50 which he uses to purchase donuts (D) and coffee (C). The price of a donut is $1 and the price of coffee is $2.50. Suppose George's income increases to $100 while the price of both donuts and coffee remain unchanged. Given this income change, one would expect George's budget line:a. to shift to the right. b. to shift to the left. c. to rotate around the coffee axis point. d. not to be affected.

Answer 1

Answer:

The correct answer is option a.

Explanation:

A budget line represents the maximum possible combination of two goods that can be purchased by an individual by spending all of his income.  

George has a weekly income of $50.

He spends this income on donuts and coffee.

The price of a donut is $1 and the price of coffee is $2.50.

As George's income increase to $100, George will be able to afford more coffee and donuts as the price of coffee does not change.  

So, the budget line will shift to the right, indicating the increase in the quantity of goods George can afford.