The ______________ is the collection of all bundles that the consumer can buy with his/her income at the prevailing market prices.
Which of the following options suits best in the above blank?
Answer & explanation
Correct answer: option 1
p1x1 + p2x2 =M .This inequality is called the consumer's budget constraint. The set of bundles available to the consumer is called the budget set. The budget set is thus, the collection of all bundles that the consumer can buy with her income at the prevailing market prices. The equation p1x1 + p2x2 =M is the budget line which consists of all bundles which cost exactly equal to M (income of consumer).