Why does a change in income cause a parallel shift in the budget constraint? How

Question

Why does a change in income cause a parallel shift in the budget constraint?

How will a utility-maximizer find the choice of leisure and income that provides the greatest utility?

In the labor-leisure choice model, what is the price of leisure?

Think about the backward-bending part of the labor supply curve. Why would someone work less as a result of a higher wage rate?

According to the model of intertemporal choice, what are the major factors which determine how much saving an individual will do? What factors might a behavioral economist use to explain savings decisions?

Explanation / Answer

1) As we all know according to consumer theory,a budget line ghraphically shows maximum affordable quantities a consumer can consume given his income. So if his income raises he has the power to increase his consumption of that two goods or other two goods but as we know the slope of the budget line depends on the relationship between the prices of the two goods so if his income raises he adjust his consumption pattern according to that.As a result a change in income cause a parallel shift in the budget constraint.

2)

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