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SHIFTS AND ROTATIONS IN BUDGET LINE

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Learning Contents:                                                                ·           Change in Budget Line/Shifts and  Rotations in Budget Line Change in Budget Line The change in Budget Line can be understood in two ways  1. Rotations in Budget Line  2. Shifts in Budget Line.  To understand the concept, it is assumed that the quantity of Good-X is shown on the X-axis and the quantity of Good-Y is shown on Y-axis. 1. Change in Price/Rotations/Movements in Budget Line When there is a change in the price of only one good either Good-X or Good-Y, the budget line tends to rotate. The effect of change in price of a good is visible in four different ways mentioned below: a. Increase in Price of Good-X: When the price of Good-X increases leaving no change in the price of Good-Y, People would buy less of Good-X that would rotate the budget line from right to left towards X-axis i.e. from ab to ac in figure 1.1 causing the budget line to be steeper.                Figure 1.