Budget constraints exist for consumers because
A)their utility from consuming goods eventually reaches a maximum level.
B)even with unlimited incomes they have to pay for each good they consume.
C)they have to pay for goods, and they have limited incomes.
D)prices and incomes are inversely related.

Question

Quizplus · Accepted Answer

Budget constraints exist because consumers have to pay for goods and they have limited incomes. This means that they must make choices about how to allocate their limited resources (money) among the goods they want or need to buy. Even if a consumer has unlimited income, they still have to pay for each good they consume, so choice B is not a complete explanation. Choice A is incorrect because it describes a different concept, the law of diminishing marginal utility. Choice D is incorrect because it describes a relationship between prices and income, rather than the reason why budget constraints exist.

Budget Constraints Exist for Consumers Because