Now suppose Darnell’s income is cut in half : That is, he has 50% less money to spend than he did before.

On the previous graph, use the blue line (circle symbols) to plot Darnell's new budget constraint.
Which of the following statements best summarizes the pattern of causality captured by the graph above? Check all that apply.
A change in S
causes a change in P
.
The relationship between S
and P
is not a causal relationship.
A change in E
causes a shift of the budget constraint.
A change in P
causes a change in S.

1 answer

Based on the provided information about Darnell's income being cut in half, we can analyze the statements related to the budget constraint and the implications of such a change. Here's a breakdown of the potential causal relationships:

  1. A change in S causes a change in P.

    • This statement implies that a change in one variable (S) affects another variable (P). In this context, S could represent the amount of money Darnell has to spend, and P could represent prices. However, this doesn't necessarily hold in the context of a budget constraint change resulting directly from a change in income.
  2. The relationship between S and P is not a causal relationship.

    • This statement may hold true. The budget constraint is typically influenced by income (S) and prices (P), but a change in income does not directly cause changes in prices, hence the relationship might be better understood as correlated rather than causal.
  3. A change in E causes a shift of the budget constraint.

    • If we interpret E as income (which Darnell's situation directly involves), this statement is accurate. A decrease in Darnell's income results in the budget constraint shifting inward (or downwards), reflecting less purchasing power.
  4. A change in P causes a change in S.

    • This statement suggests that changes in prices (P) would lead to a change in Darnell's spending ability (S), which is not accurate in the context of income changes. Rather, a change in prices impacts how much goods can be bought with a given income.

Given this analysis, the best statements that summarize the causal relationships reflected in the graph would be:

  • The relationship between S and P is not a causal relationship.
  • A change in E causes a shift of the budget constraint.

The other two statements do not accurately describe the relationships in this scenario.