The following figure displays John's budget constraint when he spends his income on tables and chairs.

-Refer to the figure above.Which of the following statements is true?
A) The opportunity cost of buying one chair is 5 tables.
B) The price of tables is more than the price of chairs.
C) The opportunity cost of buying tables increases as more tables are bought.
D) The opportunity cost of buying one table is 7 chairs.

Question

The following figure displays John's budget constraint when he spends his income on tables and chairs.
 
-Refer to the figure above.Which of the following statements is true?
A) The opportunity cost of buying one chair is 5 tables. 
B) The price of tables is more than the price of chairs. 
C) The opportunity cost of buying tables increases as more tables are bought. 
D) The opportunity cost of buying one table is 7 chairs.

Quizplus · Accepted Answer

The slope of the budget constraint is -5, which means that the opportunity cost of buying one chair is 5 tables (for example, if John buys one more chair, he has to give up space for 5 tables). Therefore, statement A is true. Statement B is false because the price of tables is $20 and the price of chairs is $4, which means that the price of tables is less than the price of chairs. Statement C is false because the opportunity cost of buying tables stays constant at 5 chairs per table. Statement D is false because the opportunity cost of buying one table is 5 chairs, not 7.

The Following Figure Displays John's Budget Constraint When He Spends