Scenario: Suppose pairs of jeans (j) cost $60 per pair, sweaters (s) cost $20 each, and you have $300 of income. Assume you purchase only jeans and sweaters with your income. Your budget constraint is:
$60 - j + $20 - s = $300.
The graph below shows 4 consumption bundles (combinations of jeans and sweaters).

-Your budget set contains ________.
A) only those bundles of jeans and sweaters that exhaust less than all your income
B) all bundles of jeans and sweaters that are affordable with your income
C) all bundles of jeans and sweaters that exhaust all your income
D) all bundles of jeans that are not affordable with your income

Question

Scenario: Suppose pairs of jeans (j) cost $60 per pair, sweaters (s) cost $20 each, and you have $300 of income. Assume you purchase only jeans and sweaters with your income. Your budget constraint is:
$60 - j + $20 - s = $300.
The graph below shows 4 consumption bundles (combinations of jeans and sweaters).
 
-Your budget set contains ________.
A) only those bundles of jeans and sweaters that exhaust less than all your income 
B) all bundles of jeans and sweaters that are affordable with your income 
C) all bundles of jeans and sweaters that exhaust all your income 
D) all bundles of jeans that are not affordable with your income

Quizplus · Accepted Answer

The budget constraint equation $60j + 20s = 300$ represents a line in the graph below, where the vertical axis measures the number of jeans (j) and the horizontal axis measures the number of sweaters (s).
The budget set contains all bundles of jeans and sweaters that are affordable with your income, represented by the area below and including the budget constraint line. Therefore, the answer is B. 
Among the given bundles, the one that maximizes utility (i.e. provides the most satisfaction) depends on your preferences. However, one possible option is bundle C, which balances a relatively high number of jeans with a moderate number of sweaters, and exhausts exactly all your income.

Scenario: Suppose Pairs of Jeans (J) Cost $60 Per Pair