A budget line is linear because
A) to purchase more of one good means giving up some of the other good.
B) the marginal rate of substitution increases.
C) the prices of the two goods are held constant.
D) the purchasing power of income increases when prices fall.

Question

Quizplus · Accepted Answer

The budget line is linear because it assumes that the prices of the two goods are constant, which means that the trade-off between the two goods does not change as more of one good is consumed in place of the other. This constant trade-off is what keeps the budget line straight.

A Budget Line Is Linear Because