Question

In the given figure, the rotation of budget line is due to 

• A. Decrease in price of apple
• B. Increase in price of apple
• C. Increase in price of banana
• D. Decrease in price of banana

Hint:

The budget line rotates based on changes in the prices of goods. An increase in the price of one good causes the line to rotate inward, while a decrease rotates it outward.

Answer 1

The Correct Option is C

Step 1: Understanding the Budget Line:
The budget line represents all the combinations of two goods that a consumer can purchase given their income and the prices of those goods. The rotation of the budget line indicates a change in the price of one of the goods.
Step 2: Analyzing the Effects of Price Change:
- Option (A): A decrease in the price of apples would make the consumer able to afford more apples, and the budget line would rotate outward along the x-axis (apples axis).
- Option (B): An increase in the price of apples would reduce the consumer’s ability to afford apples, causing the budget line to rotate inward along the x-axis.
- Option (C): An increase in the price of bananas would cause the budget line to rotate inward along the y-axis (bananas axis), as the consumer can afford fewer bananas with the same income.
- Option (D): A decrease in the price of bananas would have the opposite effect, rotating the budget line outward along the y-axis.
Step 3: Conclusion:
The rotation of the budget line shown in the figure is due to an increase in the price of bananas, making option (C) the correct answer.