What does the slope of budget line determine?
Answer & explanation
Correct answer: option 3
The correct answer is option 3: Price Ratio
The slope of the budget line is indicated by the ratio of the prices of 2 commodities which is being consumed by the consumers.
Slope = the ratio of the prices of good x and good y. The slope of the budget line is always negative as it is downward sloping.
Slope of budget line = -\(\frac{P_1}{ P_2}\)