The slope of the budget constraint line is A) the ratio of the prices (P_x/P_y). B) the negative of the ratio of the prices (P_x/P_y). C) the ratio of income divided by price of Y (I/P_y). D) none of these.

Question

Quizplus · Accepted Answer

The slope of a budget constraint line is defined as the change in the quantity of one good (y-axis) divided by the change in the quantity of the other good (x-axis). In this case, the units of measurement cancel out leaving the ratio of prices, which is negative because the budget constraint is downward sloping (i.e. as you consume more of one good, you have to consume less of the other). Therefore, the correct choice is B.

The Slope of the Budget Constraint Line Is