Suppose that a consumer purchases just two goods, X and Y. The slope of the budget line would indicate the:
A) Opportunity cost of good Y in terms of good X given up for each unit of Y
B) Opportunity cost of good X in terms of good Y given up for each unit of Y
C) Maximum quantity of good Y that the consumer could buy with a given budget
D) Maximum quantity of good X that the consumer could buy with a given budget

Question

Quizplus · Accepted Answer

The slope of the budget line indicates the rate at which one good can be traded for the other. Specifically, it shows the opportunity cost of one good in terms of the other. In this case, since there are only two goods, the slope of the budget line reflects the opportunity cost of good X in terms of good Y given up for each unit of Y. Therefore, the correct answer is (B).

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