The ratio of the prices of two goods multiplied by -1 is equal to the slope of the budget line.

Question

Quizplus · Accepted Answer

The slope of the budget line represents the rate at which one good can be traded for another. By convention, it is usually expressed as a negative number, so that when the price of one good increases, the slope becomes more negative, indicating that less of that good can be purchased. Therefore, if we multiply the ratio of the prices of two goods by -1, we obtain the slope of the budget line. For example, if the price of good X is $2 per unit and the price of good Y is $4 per unit, the ratio of the prices is 2:4, or 1:2. If we multiply this by -1, we get -0.5, which represents the slope of the budget line.

The Ratio of the Prices of Two Goods Multiplied by -1