Question : Assertion: The slope of the budget line represents the relative price of two goods in the consumer's consumption bundle.
Reason: The consumer chooses a consumption bundle where the marginal rate of substitution equals the relative price of the goods.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct answer is (a) Option A Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
The slope of the budget line represents the relative price of two goods in the consumer's consumption bundle. It indicates the rate at which the consumer can trade one good for another while staying within the budget constraint. The consumer chooses a consumption bundle where the marginal rate of substitution (MRS) equals the relative price of the goods. The MRS represents the rate at which the consumer is willing to substitute one good for another while maintaining the same level of satisfaction. When the MRS is equal to the relative price, the consumer achieves the maximum utility possible within the budget constraint. Therefore, the reason provided correctly explains the relationship between the slope of the budget line and the consumer's choice of consumption bundle.
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