Macroeconomics: Principles, Problems, & Policies 20th Edition

Published by McGraw-Hill Education
ISBN 10: 0-07766-077-3
ISBN 13: 978-0-07766-077-2

Chapter 1 - Limits, Alternatives and Choices - Discussion Questions: 6

Answer

The slope of a budget line illustrates opportunity costs and trade-offs. Because it is a straight line with a constant slope, it means that a certain amount of good 1 must be traded to get an extra unit of good 2. A consumer can move at any point along the line by chosing different combinations of the two goods.

Work Step by Step

The budget line illustrates scarcity because individuals can only consume on the line or below the line. To consume outside of the budget line, an individual would need more resources than they currently have. It is only by increasing resources, such as income, that the individual can access more goods and services.
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