How does the relative price and a household's real income influence its budget line?
What will be an ideal response?
The magnitude of the slope of the budget line equals the relative price of the good or service measured on the horizontal axis. A fall in the price of the good measured on the horizontal (vertical) axis decreases that good's relative price and decreases (increases) the slope of the budget line. A household's real income is the household's income expressed as a quantity of goods the household can afford to buy. An increase (decrease) in household income causes a parallel shift of the budget line rightward (leftward). The slope of the budget line does not change when income changes.
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Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run
What will be an ideal response?
The compensated demand curve only responds to the income effect from a price change
Indicate whether the statement is true or false