Changes in the budget line Y Changes in Income Increases lead to a parallel outward shift in the budget line a Decreases lead to a parallel downward shift Changes in Price Y New Budget line for aa decreases in the price of a price decrease good X rotates the budget line counter-clockwise An increases rotates the budget line clockwise Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Changes in the Budget Line • Changes in Income  Increases lead to a parallel, outward shift in the budget line.  Decreases lead to a parallel, downward shift. • Changes in Price  A decreases in the price of good X rotates the budget line counter-clockwise.  An increases rotates the budget line clockwise. X Y X Y New Budget Line for a price decrease