A budget line is drawn for an income of ₹60 with good 1 on the horizontal axis. It meets that axis at 12 units and the other axis at 20 units. What are the two prices?

P₁ = ₹5 and P₂ = ₹3Correct answerYour answerP₁ = ₹3 and P₂ = ₹5Correct answerYour answerP₁ = ₹12 and P₂ = ₹20Correct answerYour answerP₁ = ₹60 and P₂ = ₹60Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Horizontal intercept = M ÷ P₁, so P₁ = 60 ÷ 12 = ₹5.
Vertical intercept = M ÷ P₂, so P₂ = 60 ÷ 20 = ₹3.

Worth noting

Swapping them divides by the wrong intercept: the axis of good 1 gives its price.

Concept: Prices from the intercepts
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsBudget set and budget line

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A budget line is drawn for an income of ₹60 with good 1 on the horizontal axis. It meets that axis at 12 units and the other axis at 20 units. What are the two prices?

Explanation