X What does the above graph most closely represent? Select one: a

Economics Nov 07, 2020

X What does the above graph most closely represent? Select one: a. A 100% tax on Good b. A 100% tax on Good Y C. A 0% increase in the price of Good X. ola. A 0% Increase in the price of Good Y. ole. Unattainable consumption

Expert Solution

We see that budget line tilts from left to right. This happens only when price of good x is decreased or price of good x gets halved.
Checking the options we reject all options that relates to changes in case of good y because in the diagram y intercept remains same. so we do no consider option a and d as the answer.
Now with the remaining questions, both 100 percent tax and increase in price of good x tilts budget line inward, but here budget line tilts outward. Thus option a and c are also ruled out.
Thus it is an unattainable consumption.
Option e) is the correct answer.

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