1. **Problem statement:** A person has 120 to spend on two goods X and Y with prices 3 and 5 respectively. 2. **Budget line formula:** The budget line equation is $$3X + 5Y = 120$$ where $X$ and $Y$ are quantities of goods. 3. **Drawing the original budget line:** - To find intercepts, set $Y=0$ then $3X=120 \Rightarrow X=\frac{120}{3}=40$. - Set $X=0$ then $5Y=120 \Rightarrow Y=\frac{120}{5}=24$. - So intercepts are $(40,0)$ and $(0,24)$. 4. **Case B: Budget falls by 25%** - New budget = $120 - 0.25 \times 120 = 90$ - New budget line: $$3X + 5Y = 90$$ - Intercepts: $X=\frac{90}{3}=30$, $Y=\frac{90}{5}=18$ 5. **Case C: Price of X doubles** - New price of X = $3 \times 2 = 6$ - Budget line: $$6X + 5Y = 120$$ - Intercepts: $X=\frac{120}{6}=20$, $Y=\frac{120}{5}=24$ 6. **Case D: Price of Y falls to 4** - New price of Y = 4 - Budget line: $$3X + 4Y = 120$$ - Intercepts: $X=40$, $Y=\frac{120}{4}=30$ 7. **Summary of budget lines:** - Original: $3X + 5Y = 120$ - Budget down 25%: $3X + 5Y = 90$ - Price X doubles: $6X + 5Y = 120$ - Price Y falls: $3X + 4Y = 120$ 8. **Explanation:** - The budget line shifts inward when budget falls. - It pivots inward on X-axis when price of X doubles. - It pivots outward on Y-axis when price of Y falls.