JAMB Economics 2015 Paper

Concept:A parallel shift of the budget line means that the price ratio of the two goods remains unchanged.Explanation:The budget line is given by $M = P_A A + P_B B$, where $M$ is money income and $P_A, P_B$ are the prices of goods A and B.Its slope shows the price ratio, $-\frac{P_A}{P_B}$.When the budget line shifts from $JK$ to $GH$, it moves outward parallel, so the slope is unchanged.Therefore, $-\frac{P_A}{P_B}$ remains the same, meaning there is no change in the price of A relative to the price of B.The shift could be due to either an increase in income or a proportional fall in both prices, so we cannot definitely choose option A or B.Answer:D. There has been no change in the price of A relative to the price of B.