Which of the following pairs is correctly matched?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Horizontal intercept of the budget line — Entire income spent on bananas
At the horizontal intercept she buys only bananas, with her whole income.
Option (1) Vertical intercept of the budget line — \( \displaystyle\frac{M}{p_1} \) — Incorrect. M/p1 is the horizontal intercept; the vertical intercept is M/p2.
Option (2) Tangency optimum — MRS is greater than the price ratio — Incorrect. At the tangency optimum, MRS equals the price ratio.
Option (3) Horizontal intercept of the budget line — Entire income spent on bananas — Correct. It is the bundle she buys if she spends her entire income on bananas.
Option (4) A point below the budget line — The consumer’s optimum under monotonic preferences — Incorrect. A point below the line cannot be the optimum when preferences are monotonic.
NCERT (2026-27): “2.2.1 Budget Set and Budget Line … The budget line is a straight line with horizontal intercept M/p1 and vertical intercept M/p2. The horizontal intercept represents the bundle that the consumer can buy if she spends her entire income on bananas. Similarly, the vertical intercept represents the bundle that the consumer can buy if she spends her entire income on mangoes. …” “Equality of the Marginal Rate of Substitution and the Ratio of the Prices The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. If the budget line is tangent to an indifference curve at a point, the absolute value of the slope of the indifference curve (MRS) and that of the budget line (price ratio) are same at that point. …” “2.3 Optimal Choice of the Consumer … The optimum point would be located on the budget line. A point below the budget line cannot be the optimum. …” |