Economics, 3rd Edition

A Change in Prices

A Change in the Price of Cola 

Assume the consumer’s income is 

€1,000 per month and the price of cola 

is 

€2 per litre and the price of pizza is €10. The budget constraint would look like that shown in Figure 5.1. 

Now assume that the price of cola rises to 

€5 per litre. The consumer would now only be able to afford 

to buy 200 litres of cola if he devoted all his income to cola. The budget constraint would, therefore, pivot 

inwards as shown in Figure 5.3.

The Effect on the Budget Constraint of a Change in Income

Th E

ff

t

th B

FIGURE 5.2

Quantity

of cola

Quantity

of pizza

500

100

750

150

A Change in the Price of Cola

If the price of cola rises from 

€2 per litre to €5 per litre, the consumer can now 

afford to buy less cola with his income. The budget line pivots inwards and if the 

consumer devoted all his income to cola he would only be able to buy 200  litres 

compared to 500  litres before the price changed.