Question

The alternative combination of two goods that a consumer can purchase with a specific money income is shown by

A.a production possibilities curve.
B.a demand curve.
C.a consumer expenditure line.
D. a budget line.

Answer 1

The alternative combination of two goods that a consumer can purchase with a specific money income is a budget line. This line delineates the maximum quantities of two goods a consumer can afford given their income and the prices of the goods.

Thus option d is correct.

Explanation:

The concept of a budget line illustrates the various combinations of two goods a consumer can afford to purchase given a specific income and the prices of the goods. It represents the boundary of attainable choices, showcasing the maximum quantities of two goods that can be bought with the available income. The equation for a budget line is typically expressed as:

`\[ \text{Budget} = \text{Price of Good 1} * \text{Quantity of Good 1} + \text{Price of Good 2} * \text{Quantity of Good 2} \]`

For instance, if a consumer has a fixed income of $100 and the price of Good 1 is $10 while Good 2 costs $5, the budget line equation would be:

`\[ \text{Budget} = 10Q_1 + 5Q_2 \]`

Here,
`\(Q_1\)` and
`\(Q_2\)` represent the quantities of Good 1 and Good 2, respectively, that the consumer can purchase.

The slope of the budget line is determined by the ratio of the prices of the two goods. Any point on the line or within the line's constraints represents a feasible combination of the goods within the consumer's budget. It's a fundamental concept in consumer theory, showcasing the trade-offs consumers face when allocating their limited income between different goods based on their preferences and prices. Therefore, the budget line is the accurate representation of the alternative combinations of goods a consumer can purchase given their income constraint and the prices of the goods.

Therefore option d is correct.