Explain why the statement is true or false; Affordable bundles for a consumer only include those...

Explain why the statement is true or false; Affordable bundles for a consumer only include those bundles on or below the budget line itself.

Expert Solution

Budget line shows those allocations such that in order to buy those allocations consumer will have to spent his entire budget. Any point inside budget line means that while purchasing that allocation a consumer can save some amount i.e. amount spent on those allocation will be lesser than her budget. Any allocation outside budget line means that amount he need to spend on allocation outside the budget line must be greater than her budget income.

Affordable allocations are those allocations which a consumer can purchase with her budget income. As discussd above that amount she spends on allocation inside or on budget line must be lesser than or equal to Budget income respectively. So, Allocations inside budget line and on budget line are affordable.

Any allocation outside budget line means that amount he need to spend on allocation outside the budget line must be greater than her budget income. Thus with the given budget income she cannot buy allocations which are outside the Budget line and thus Allocations outside budget line are not affordable.

Hence, This Statement is True

Rahul Sunny answered 8 months ago

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