A budget line shows the
A) consumption possibilities of a consumer at a given level of income and prices.
B) complete set of preferences for a household at various incomes.
C) consumption possibilities for several sets of relative prices at a level of income.
D) rate at which consumers wish to substitute one good for another.

Question

Quizplus · Accepted Answer

A budget line shows the different consumption possibilities that a consumer can have given their income and the prices of goods. It is a graphical representation of the budget constraint, which limits a consumer's ability to purchase goods and services. Therefore, option A is correct. Option B is incorrect because a budget line does not represent complete sets of preferences but instead shows the trade-off between two goods. Option C is incorrect because a budget line shows consumption possibilities for only one set of prices. Finally, option D is incorrect because the budget line does not show the rate at which consumers wish to substitute one good for another.

A Budget Line Shows the