Suppose a consumer purchases pizza and soft drinks.If pizza is measured on the vertical axis and soft drinks are measured on the horizontal axis,then the slope of the budget line is equal to:
A) the price of pizza divided by the price of soft drinks.
B) the price of soft drinks divided by the price of pizza.
C) the price of pizza divided by the price of soft drinks times negative one.
D) the price of soft drinks divided by the price of pizza times negative one.

Question

Quizplus · Accepted Answer

The slope of the budget line represents the rate at which a consumer can trade one good for another, which is determined by the relative prices of the two goods. In this case, it's the price of soft drinks divided by the price of pizza, but since we're moving from left to right on the horizontal axis (soft drinks) and typically up on the vertical axis (pizza), the slope is negative, indicating that to get more of one good, you have to give up some of the other. Hence, the correct answer is the price of soft drinks divided by the price of pizza, times negative one.

Suppose a Consumer Purchases Pizza and Soft Drinks