Question : The concept of the budget line is based on:
Option 1: Consumer preferences
Option 2: Consumer income
Option 3: Consumer prices
Option 4: All of the above
Correct Answer: All of the above
Solution : The correct answer is (d) All of the above.
The concept of the budget line in consumer theory is based on all of the factors mentioned: consumer preferences, consumer income, and consumer prices. The budget line represents the different combinations of goods and services that a consumer can afford given their income and the prices of the goods. It shows the various options available to the consumer within their budget constraint. The slope of the budget line is determined by the relative prices of the goods, while the position of the budget line is determined by the consumer's income. Ultimately, the consumer's preferences play a role in determining which combination of goods the consumer chooses from the available options on the budget line.
