Economics, 3rd Edition

A Ch

i th P i

FIGURE 5.3

Quantity

of cola

Quantity

of pizza

500

200

100

625

The slope of the budget constraint has now changed. The ratio of the price of cola to the price of pizza 

is now 

5

10

 so the slope of the budget line is 

−2. For every 1 litre of cola the consumer acquires he has to 

give up half a pizza and for every 1 extra pizza bought the consumer now has to sacrifice 2 litres of cola. 

Notice that as the price of cola has risen the consumer now has to sacrifice fewer litres of cola to purchase 

every additional pizza, but if the consumer is switching from cola to pizza he has to give up more pizza to 

buy an additional litre of cola.

If the price of cola were to fall but the price of pizza stayed the same, the budget line would pivot out-

wards as shown in Figure 5.3. If the price of cola fell to 

€1.60 the consumer will now be able to afford to 

buy more cola with his income. If all income was devoted to buying cola the consumer would now be able 

to purchase 625 litres of cola.

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CHAPTER 5  BACKGROUND TO DEMAND: THE THEORY OF CONSUMER CHOICE  107