The budget line shows:
A) the amount of product A which a consumer is willing to give up to obtain one more unit of product B
B) all possible combinations of two goods which can be purchased, given money income and the prices of the goods.
C) all equilibrium points on an indifference map.
D) all possible combinations of two goods which yield the same level of utility to the consumer.

Question

Quizplus · Accepted Answer

The budget line represents all possible combinations of two goods that can be purchased with a given money income and the prices of the goods. It indicates the tradeoff between the two goods and shows the maximum quantities that can be purchased given the consumer's budget constraint. Option A is incorrect because it refers to the marginal rate of substitution (MRS) which is represented by the slope of the indifference curve. Option C is incorrect because not all combinations on the budget line are equilibrium points. Option D is incorrect because the combinations on the budget line may yield different levels of utility to the consumer.

The Budget Line Shows