Question

How does the slope of a budget line illustrate opportunity cost and trade-offs? How does a budget line illustrate scarcity and the effect of limited incomes

Answer 1

The slope of a budget line is negative. That is the budget line is downward sloping, it shows an inverse relationship between consumption of two goods. When consumers increase consumption of one good, consumption of other good must be decreased. This decrease in consumption is the opportunity cost of the goods consumers are getting more of.

Budget line shows consumers are limited by their income as the downward slope shows that one can not get more and more of both goods. Income is scarce. There is always a tradeoff. Beyond the budget line, consumers cannot purchase without borrowing as it is beyond the limit of income.