Which of the following statements is correct?
A) Consumers have the ability to buy everything they desire.
B) A consumer's budget line shows the limits to what a consumer can buy.
C) A consumer's budget line shows the goods with the highest marginal utilities.
D) Rich consumers are unaffected by prices.
E) A budget line changes only if the person's budget changes.

Question

Quizplus · Accepted Answer

A budget line shows the various combinations of goods and services that a consumer can purchase with a limited budget. It is a graphical representation of the budget constraint that a consumer faces, which shows the maximum amount of one good that can be purchased for each possible level of spending on the other goods. Therefore, it indicates the limits to what a consumer can buy with a given budget. Option A is incorrect because not all consumers have the ability to buy everything they desire due to budget constraints. Option C is incorrect because a budget line does not necessarily show the goods with the highest marginal utilities as the marginal utility varies for each individual consumer. Option D is incorrect because prices affect everyone, regardless of their income level. Option E is incorrect because a budget line changes not only due to changes in the budget but also due to changes in prices of goods and services.

Which of the Following Statements Is Correct