The magnitude of the slope of the budget line is equal to the ________ or ________ of the good plotted on the ________ in terms of the other good.
A) relative price; marginal cost; y-axis
B) relative price; total cost; y-axis
C) relative price; opportunity cost; x-axis
D) price; opportunity cost; x-axis

Question

Quizplus · Accepted Answer

The slope of the budget line represents the relative price of the two goods in terms of each other (i.e. the opportunity cost of one good in terms of the other). This is because the slope shows how much of one good must be given up to obtain more units of the other good. The magnitude of the slope represents the absolute value of the slope, which is the steepness of the line. This has no relation to the marginal cost or total cost of the goods. Finally, the good plotted on the x-axis represents the good whose quantity is changing, while the other good is held constant. Therefore, the slope represents the opportunity cost of obtaining more units of the good plotted on the x-axis (i.e. the good whose quantity is changing) in terms of the other good.

The Magnitude of the Slope of the Budget Line Is