A Consumption Point Inside the Budget Line

question 52

Multiple Choice

A consumption point inside the budget line

• A) is unaffordable.
• B) is possible to afford but has some unspent income.
• C) shows that the consumer has chosen to spend all of his or her income on both products.
• D) shows that the consumer spends income on only one of the goods.
• E) is affordable and, because it is inside the budget line, means that all the person's budget has been spent.

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Definitions:

Price Elasticity

An assessment of demand's elasticity regarding the pricing changes of a specific product.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices, holding all else constant.

Cost Function

An equation that calculates the total cost incurred by a company to produce a specific quantity of a good or service.

Long-run Equilibrium

A market condition where all factors of production and inputs can be varied, allowing firms to enter or exit the market, ultimately resulting in no economic profit for any firm.