Larry consumes only beer (B)and chips (C). The magnitude of the slope of his budget line (with beer measured on the vertical axis)is
A)PC/Y.
B)PC × PB.
C)Y/PC.
D)Y/PB.
E)PC/PB.

Question

Quizplus · Accepted Answer

The slope of the budget line represents the rate at which one good can be exchanged for the other. In this case, Larry can exchange his money between beer (B) and chips (C) at the prices PB and PC respectively. Therefore, the slope of the budget line can be calculated as the ratio of the price of chips to the price of beer, which is PC/PB. Hence, the correct answer is E.

Larry Consumes Only Beer (B)and Chips (C)