In order to determine a household's budget line, you must know the
A) prices of the goods bought, but not the household's income.
B) prices of the goods bought and the household's income.
C) household's income, but not the prices of goods bought.
D) household's income, the prices of the goods bought, and the household's preferences.

Question

Quizplus · Accepted Answer

A household's budget line is determined by both the prices of the goods bought and the household's income. This line represents all the combinations of goods and services that the household can afford given its income and the prices of goods. Preferences do not determine the budget line, but rather where on the line the household chooses to consume.

In Order to Determine a Household's Budget Line, You Must