Suppose that a consumer purchases just two goods, X and Y. The ratio of the price of good X to the price of good Y is the
A) intercept on the Y axis of the budget line.
B) intercept on the X axis of the budget line.
C) size of the shift in the budget line.
D) slope of the budget line.

Question

Quizplus · Accepted Answer

The slope of the budget line represents the ratio of the prices of the two goods. As the budget line equation is given by PxX + PyY = M (where Px and Py are the prices of goods X and Y respectively, X and Y are the quantities of the goods consumed, and M is the budget), the slope of the budget line is -Px/Py. Therefore, the ratio of the price of good X to the price of good Y is the slope of the budget line.

Suppose That a Consumer Purchases Just Two Goods, X and Y