Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the
A)consumer's income divided by the price of crackers.
B)relative price of peanuts and crackers.
C)consumer's marginal rate of substitution.
D)number of peanuts purchased divided by the number of crackers purchased.

Question

Quizplus · Accepted Answer

The slope of the budget constraint is determined by the relative prices of the two goods, which is the ratio of the price of peanuts to the price of crackers. Therefore, option B is the correct answer as it reflects this. Option A is incorrect because it only measures the affordability of one of the goods. Option C is incorrect because it measures the rate at which the consumer is willing to substitute between the two goods but not the slope of the budget constraint. Option D is incorrect as it only measures the ratio of the quantities of the two goods being purchased, which may not necessarily determine the slope of the budget constraint.

Consider Two Goods: Peanuts and Crackers