If the budget constraint is given by M = P₁Y₁ + P₂Y₂ then:

Question

Quizplus · Accepted Answer

The y-intercept of a budget constraint is found by setting the quantity of the good on the x-axis to zero and solving for the quantity of the good on the y-axis. In this equation, assuming the goods on the x and y axes are not explicitly defined, the y-intercept would be determined by how much of the good corresponding to the y-axis can be purchased with the total money available, M. Given the structure of the equation, the correct interpretation for the y-intercept, based on standard budget constraint formulation, is M divided by the price of the good on the y-axis, which is represented by P₂, making the correct answer M/P₂.

If the Budget Constraint Is Given by M = P1Y1

If the Budget Constraint Is Given by M = P₁Y₁