Multiple Choice
Campin' Sam buys firewood and ice. When the price of firewood decreases, the maximum number of firewood she can purchase _____________ and the maximum number of ice she can purchase _______________
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18. Consumer Choice and Behavioral Economics
Budget Constraint
Multiple Choice
Which of the following does an individual's budget line not reveal?
A
The consumer's preferences between goods
B
The consumer's income
C
The relative prices of the goods
D
The combinations of goods that can be purchased
Verified step by step guidance1
Understand what a budget line represents: it shows all possible combinations of two goods that a consumer can purchase given their income and the prices of those goods.
Identify the components revealed by the budget line: it reflects the consumer's income (since the total spending cannot exceed income) and the relative prices of the goods (since the slope of the budget line is determined by the price ratio).
Recognize that the budget line shows the combinations of goods that can be purchased, as every point on or below the line represents affordable bundles.
Note that the budget line does not provide any information about the consumer's preferences or how they rank different combinations of goods; preferences are separate from budget constraints.
Conclude that the budget line reveals income, relative prices, and affordable combinations, but not the consumer's preferences between goods.
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