A consumption bundle is affordable as long as:
A) it is a point that is on an indifference curve that is to the right of the budget line.
B) it is a point that falls on the 45 degree line.
C) the present discount value of the consumption stream is less than the present discount value of the income stream.
D) the amount of the good consumed from year to year does not increase.

Question

Quizplus · Accepted Answer

A consumption bundle is considered affordable if the present discounted value of the consumption stream is less than or equal to the present discounted value of the income stream. This means that the total value of the goods and services consumed, when adjusted for the time value of money, should not exceed the total value of the income earned over the same period, also adjusted for the time value of money.

A Consumption Bundle Is Affordable as Long As