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Assume P_x is the price of good X on the horizontal axis and P_y is the price of good Y on the...

Question:

Assume {eq}P_x {/eq} is the price of good {eq}X {/eq} on the horizontal axis and {eq}P_y {/eq} is the price of good {eq}Y {/eq} on the vertical axis. The slope of the budget line equals:

a. {eq}\dfrac {P_y}{P_xY} {/eq}.

b. {eq}\dfrac {P_yQ_y}{P_x Q_x} {/eq}.

c. {eq}\bigg (1 - \dfrac {P_y}{P_x}\bigg) {/eq}.

d. {eq}\dfrac {P_x}{P_y} {/eq}.

Budget line

The budget line is graphically represented as the line of consumption units consumed of the two goods with certain prices. As the two goods are given on the y and x-axis, the price changes change consumption. Thus, the slope of the budget line means the ratio of prices of two goods.

Answer and Explanation: 1


The correct answer is d. Px/Py

The slope of the budget line is when the price of X would be divided by the price of Y. Hence, the ratio of Px/Py would be the slope of the budget line. The budget line moves with the changes in prices of two goods, X and Y. Hence, the budget line slope is defined by the ratio of two prices.


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Budget Lines & the Rate of Transformation in Economics

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Chapter 3 / Lesson 11
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In economics, the rate of transformation model can be used to visualize the concept of budget constraints. Learn more about budget constraints, budgets lines, the rate of transformation curve, and how to maximize the utility of the concepts.


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