Economics (AS & A Level) · Oct / Nov 2022 · Paper 31 · Question 6

In the diagram, YL and YM show two budget lines for a consumer of a product, X, when its price changes. IC1 and IC2 are two indifference curves, representing the consumer's preferences between product X and spending on other goods. What is not a valid statement?

1. AProduct X must be a Giffen good, since the consumer spends more on other goods after the price change.
2. BThe consumer has greater satisfaction at E2 than at E1.
3. CThe prices of other goods are assumed to be held constant when drawing the budget lines.
4. DThe shift from YL to YM represents a fall in the price of product X.

As printed in the paper