Question

In the Ordinal Utility Analysis, the budget line cannot slope positively. Defend or refute the statement with a reason. 

Answer 1

The budget constraint for two goods X and Y with prices Px and Py and income I is I = Px·X + Py·Y. Solving for Y gives Y = I/Py − (Px/Py)·X, so the slope of the budget line is −Px/Py. Because prices (Px, Py) and income are assumed positive and quantities are measured on positive axes, −Px/Py is negative, so the budget line must slope downward.