JAMB Economics 2015 Paper

Concept:The budget line shows all combinations of two goods a consumer can buy with a given income at current prices.Explanation:Let the consumer’s money income be $M$.Suppose the prices of two goods $X$ and $Y$ are $P_X$ and $P_Y$.The consumer can only afford bundles where $P_X X + P_Y Y \le M$.The budget line is the boundary of this affordable region: $P_X X + P_Y Y = M$.This line is drawn in commodity space, showing the trade-off between good $X$ and good $Y$.Its slope is $-\frac{P_X}{P_Y}$, which represents the rate at which one good can be exchanged for another.When the consumer spends all income, every point on the line uses the full budget.If income or prices change, the budget line shifts or rotates accordingly.A supply curve or demand curve relates price to quantity, not budget constraints.Liquidity preference is about holding money, not commodity purchases.Therefore, the correct line is the budget line.Answer:C. Budget line.