Question

In the diagram given above, CD is the budget line. What does the point G represent?

Options

• Combination of two goods on which a consumer spends her entire money income.

• Combination of two goods on which a consumer spends less than her money income.

• Combination of two goods on which a consumer spends greater than her money income.

• Consumer spends her entire money income either on Good A or Good B.

Answer 1

Combination of two goods on which a consumer spends less than her money income.

Explanation:

The fact that point G is inside the budget line CD shows that the person is not spending all of their money. For less money, they are buying a mix of Goods A and B that costs less than their whole income.