Western Governors University (WGU) ECON5000 C211 Global Economics for Managers Practice Exam

An increase in income directly impacts a budget constraint by expanding a consumer's options. When income rises, the consumer can afford to purchase more goods and services than before, shifting the budget line outward. This means that the consumer can now access a larger set of consumption bundles, which consist of different combinations of goods that they might choose to buy. As a result, the increase in income allows the consumer to potentially achieve higher levels of utility or satisfaction from their purchases, as they are not limited to the previous constraints.

In contrast, the other options do not accurately represent the impact of an income increase on the budget constraint. While an increase in income does not shrink options, it directly enhances them, enabling the consumer to choose from a larger variety of goods and services. It does not have a neutral effect on choices—in fact, it actively broadens the available options—and it does not solely impact prices; rather, it modifies the consumer's overall purchasing power.