How will an increase in the consumer's income affect the budget line?

1. Parallel inward shift of budget line.
2. Parallel outwards shift in budget line.
3. The budget line rotates outwards.
4. Budget line rotates and shifts outwards.

Option 1 -> This occurs when income decreases, reducing purchasing power.

Option 2 -> This occurs when income increases while prices remain constant, expanding purchasing power equally for both goods.

Option 3 -> This occurs when the price of one good changes, altering the slope of the budget line.

Option 4 -> This would occur with simultaneous changes in income and prices at different rates.

Hence, Parallel outwards shift in budget line -> When consumer income increases while prices of both goods remain unchanged, the budget line shifts parallel outward. This is because both intercepts (M/Px and M/Py) increase proportionally, maintaining the same slope (-Px/Py). The consumer can now afford more of both goods, but the trade-off ratio between goods remains constant since relative prices haven't changed. -> correct