A budget line shift occurs when there is a change in a consumer’s purchasing power, affecting the combinations of goods they can afford.

The main causes are:

• Change in Money Income: If income increases, the budget line shifts outward (parallel to the right). If income decreases, it shifts inward (parallel to the left).
• Change in Price of One Good: If the price of one good changes, the budget line rotates. If the price falls, the line rotates outward on that good’s axis; if the price rises, it rotates inward.
• Change in Prices of Both Goods: If both prices change by the same proportion, the budget line will shift parallel to its original position because the relative price remains the same.

Key Summary:

• Income changes result in parallel shifts of the entire line.
• Single price changes cause the line to rotate at one intercept, changing the slope.
• Proportional price changes for both goods result in a parallel shift.

Example: If a person’s income increases from £100 to £150, they can afford more of both goods, causing the budget line to shift outward.