What does every point on a budget line represent?

• A. A combination of two goods that is below the consumer's budget
• B. A combination of two goods that maximizes utility
• C. A combination of two goods that exhausts the consumer's income
• D. A combination of two goods that is unaffordable for the consumer

Answer: (C)

Verified step by step guidance

1. Understand that a budget line represents all possible combinations of two goods that a consumer can purchase given their income and the prices of the goods.
2. Recall the budget constraint equation: \(\text{Income} = P_x \times Q_x + P_y \times Q_y\), where \(P_x\) and \(P_y\) are the prices of goods \(x\) and \(y\), and \(Q_x\) and \(Q_y\) are the quantities of these goods.
3. Recognize that every point on the budget line satisfies the equation exactly, meaning the consumer spends all their income on the combination of goods.
4. Points below the budget line represent combinations where the consumer spends less than their income (not exhausting the budget), while points above are unaffordable.
5. Therefore, every point on the budget line represents a combination of two goods that exhausts the consumer's income.