Final answer:
The statement in question is false; consumers can afford any basket of goods on or within their budget line. The budget line represents the tradeoffs and choices consumers can make within their income constraints, and a point closer to the origin than the budget line is affordable.
Step-by-step explanation:
The statement 'A consumer cannot consume a basket of goods that lies closer to the origin than their budget line because they cannot afford that basket' is false. A budget line represents all the possible combinations of goods and services a consumer can purchase with their income at given prices. Therefore, any combination of goods that lies on or within the budget line—including points closer to the origin—is affordable. Conversely, points outside or beyond the budget line represent combinations of goods that the consumer cannot afford given their budget constraints.
When faced with a negative income effect, such as a situation where expected income does not arrive, a consumer's budget line shifts inward toward the origin on a graph. This signifies that the consumer can afford fewer goods overall. If the consumer's preferences are for normal goods, they will buy less of every good with the decrease in their income.
The concept of the budget line is fundamental in understanding the tradeoffs and choices consumers make within the scope of their financial limitations. In economics, tradeoffs are the decisions that consumers, firms, and societies make to forego certain options in favor of others that they desire more within the reality of scarce resources.