Question 12 of 26beginner🧠 RememberVery Short1 mark
What is budget line?
Correct Answer
The budget line represents all bundles of goods which cost the consumer her entire income at the prevailing market prices. It is a negatively sloping straight line showing the maximum combinations of two goods that a consumer can purchase by spending her complete budget.
Exercise: EXERCISES | Q: 2
For More Understanding
Explanation
This is a 1-mark definition question. The textbook clearly states that 'The budget line represents all bundles which cost the consumer her entire income.' The equation of the budget line is p₁x₁ + p₂x₂ = M, where M is the consumer's income and p₁, p₂ are prices of the two goods. Points on this line represent bundles that cost exactly equal to the consumer's income, while points below it cost less than M.