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Question -

What happens to the budget set if the prices as well as the income double?



Answer -

Ifthe prices and the income are doubled, then the budget line will remainunchanged.

M1 = Rs 20

P1 = Rs 4

P2 = Rs 5


M2 = Rs 40

= Rs 8

= Rs 10

Horizontal intercept

Vertical intercept

Slope 

Hence,the vertical intercept, the horizontal intercept and the slope of the budgetline will remain the same. The new budget line will be the same as the oldbudget line but associated with higher income and higher prices of both thegoods.

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