Question

Budget line shows ______.

Options

• Possible combination of two goods that a consumer can buy by spending his entire income at the given prices

• Possible combination of two goods which cost less than or equal to consumer’s money income

• Possible combination of two goods among which the consumer is indifferent

• All the these

Answer 1

Budget line shows possible combination of two goods that a consumer can buy by spending his entire income at the given prices.

Explanation:

A budget line shows combinations that use exactly the consumer’s entire income at given prices. Combinations costing less than income belong to the budget set; equal-satisfaction combinations belong to an indifference curve.