Economics, 3rd Edition

A Change in the Price of Pizza

A change in the price of pizza ceteris paribus would cause a pivot in the 

budget constraint. If the price of pizza fell then the budget constraint would 

pivot outwards and if the price of pizza rose the budget constraint would pivot 

inwards.

A Ch

i th P i

FIGURE 5.4

Quantity

of cola

Quantity

of pizza

500

80 100

125

A change in the Price of Both Goods 

If the price of both goods changes then the shape of the budget 

line would depend on the relative change in the prices of the two goods. The slope would still be the ratio 

of the price of cola to the price of pizza. Figure 5.5 shows a rise in the price of cola from 

€2 to €4 and a fall 

in the price of pizza from 

€10 to €8. If the consumer devoted all his €1,000 per month income to cola he 

could now afford to buy 250 litres of cola and if he devoted all his income to pizza he could now buy 125 

pizzas per month. The ratio of the price of cola to the price of pizza would be 

4

8

 and so the slope of the 

budget constraint would now be 2.