Stormy buys two types of meat—chicken and hamburger. If she measures the quantity of hamburger she buys on the y-axis and the quantity of chicken she buys on the x-axis, how does her budget line change when the price of chicken rises by more than the price of hamburger rises?
Stormy’s budget line ______________.
Wrong! - What do the intercepts of Stormy’s budget line measure? Have the x-axis and y-axis intercepts changed? What does the slope of her budget line measure? Has the slope changed?
Well Done! - Each intercept of Stormy’s budget line measures her real income in units of the good on that axis. When the prices of both goods rise, Stormy’s real income in terms of chicken and in terms of hamburger decreases, so both intercepts decrease. The slope of the budget line measures the relative price of chicken in terms of hamburger. This relative price increased, so her budget line has become steeper.
