There may be six possible reasons causing shift of budget line. Let us consider all the cases one by one:
i) Increase in Price of Cold Drink:
Suppose, price per bottle of cold drink increases, whereas price of sandwiches remains unchanged.
This will cause an inward rotation of the budget line [panel (a) of figure 7.12] showing that, now if Mr. X spends all his income in buying cold drink only, he will be able to buy less number of bottles of cold drink, but he will get the same number of sandwiches if all his income is spent on sandwiches.
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ii) Decrease in Price of Cold Drink:
ADVERTISEMENTS:
Suppose, price per bottle of cold drink decreases, whereas price of sandwiches remains unchanged. This will cause an outward rotation of the budget line [panel (b) of figure 7.12] showing that, now if Mr. X spends all his income in buying cold drink, he will be able to buy more number of bottles of cold drink, but he will get the same number of sandwiches if all his income is spent on sandwiches.
iii) Increase in Price of Sandwiches:
Suppose, price per piece of sandwich increases, whereas price of cold drink does not change. This will cause an inward rotation of the budget line [panel (c) of figure 7.12] showing that, now if Mr. X spends all his income in buying cold drink he will be able to buy less number of sandwiches, but he will get the same number of bottles of cold drink if all his income is spent on cold drink.
iv) Decrease in Price of Sandwiches:
ADVERTISEMENTS:
Suppose, price per piece of sandwiches declines whereas price of cold drink remains as it is. This will cause an outward rotation of the budget line [panel (d) of figure 7.12] showing that, now if Mr. X spends all his income in buying sandwiches he will be able to buy more sandwiches, but he will get the same number of bottles of cold drink if all his income is spent on cold drink.
v) Increase in Income of the Consumer:
If income of the consumer increases, this will cause an outward parallel shift of the budget line [panel (e) of figure 7.12] implying that, now if Mr. X spends all his income in buying either cold drink or sandwich, he will get more of both the products. The same kind of shift in budget line will occur where prices of both the products decrease in the same proportion.
vi) Decrease in Income of the Consumer:
Decrease in income of consumers leads to an inward parallel shift of the budget line [panel (f) of figure 7.12] implying that now, if Mr. X spends all his income in buying either cold drink or sandwich, he will get less of both the products. The same kind of shift in budget line takes place where prices of both the products increase in the same proportion.