There are two goods.You know how much of good 1 a consumer can afford if she spends all of her income on good 1.If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information.

Question

Quizplus · Accepted Answer

The ratio of the prices of the two goods allows us to determine the slope of the budget line, which in turn determines how much of each good can be purchased at different levels of income. Therefore, knowing the ratio of prices is sufficient to draw the budget line.

There Are Two Goods