Read the following statements - Assertion (A) and Reason (R)carefully and choose the correct alternative given below:
Assertion (A): Budget Set includes all the combination of two goods which cost equal to less than consumer's money income.
Reason (R ): Budget line includes all the possible bundle which lies below the budget line.
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Assertion (A) is true but Reason (R ) is false
Assertion (A): This statement is true. The budget set refers to all the possible combinations of two goods that a consumer can afford given their income and the prices of the goods. It encompasses all the points that satisfy the budget constraint equation (p₁x₁ + p₂x₂ ≤ M), where:
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- p₁ and p₂ are the prices of the two goods
- x₁ and x₂ are the quantities of the two goods
- M is the consumer's income
Reason (R ): Budget line includes all the possible bundle which lies below the budget line. It is incorrect. Reason incorrectly describes the budget line. The budget line represents all possible bundles of goods that can be purchased given the consumer's income and the prices of the goods.That means the cost of all the bundles on the budget line is equal to the money income of the consumer.