This graph shows three different budget constraints: A,B,andC.

If Joe has budget constraint C in the graph shown,what is the relative price of three gallons of milk?
A)2 cases of soda
B)4 cases of soda
C)$12
D)$9

Question

This graph shows three different budget constraints: A,B,andC.

If Joe has budget constraint C in the graph shown,what is the relative price of three gallons of milk?
A)2 cases of soda 
B)4 cases of soda 
C)$12 
D)$9

Quizplus · Accepted Answer

Given that Joe has budget constraint C, we can see that the relative price of milk (the slope of the budget line) is equal to the negative of the ratio of the prices of soda and milk. By examining the slope of the budget line, we can see that the relative price of milk is 2/3, since the slope is -3/2.

To determine the best choice(s), we need to find the point on the budget line that maximizes Joe's utility. We don't have any information about Joe's preferences, so we can't say for certain what option he would choose.

However, we can identify the affordable bundles of goods that are available to Joe. At point A, Joe can buy 8 gallons of milk and no soda. At point B, Joe can buy 6 gallons of milk and 2 cases of soda. At point C, Joe can buy 4 gallons of milk and 4 cases of soda. At point D, Joe can buy 2 gallons of milk and 6 cases of soda.

To identify the best choice(s), we would need to know more about Joe's preferences, but we can say that any bundle on the budget line is affordable and any bundle inside the budget line is not affordable.

This Graph Shows Three Different Budget Constraints: A,B,andC