-Consider the budget line in the above figure. If the consumer's income is $120, then the price of a book is
A) $12 per book.
B) $6 per book.
C) $10 per book.
D) More information is needed to determine the price of a book.

Question

-Consider the budget line in the above figure. If the consumer's income is $120, then the price of a book is
A) $12 per book. 
B) $6 per book. 
C) $10 per book. 
D) More information is needed to determine the price of a book.

Quizplus · Accepted Answer

The budget line is a straight line that shows all the possible combinations of two goods that a consumer can buy with a given income. The slope of the budget line is equal to the negative of the ratio of the prices of the two goods. In this case, the slope of the budget line is -2, which means that the price of a book is twice the price of a movie. Since the consumer's income is $120, the y-intercept of the budget line is 120. This means that the consumer can buy 120 movies or 60 books with their income. Therefore, the price of a book is $12 per book.

-Consider the Budget Line in the Above Figure