A

B

C

D

E

F

5

4

3

2

1

0

TABLE 2.1

0

4

8

12

16

20

Step 7. Notice that the slope of a budget constraint always shows the opportunity cost of the good which is on

the horizontal axis. For Alphonso, the slope is −0.25, indicating that for every bus ticket he buys, he must give up

1/4 burger. To phrase it differently, for every four tickets he buys, Alphonso must give up 1 burger.

There are two important observations here. First, the algebraic sign of the slope is negative, which means that

the only way to get more of one good is to give up some of the other. Second, we define the slope as the price of

bus tickets (whatever is on the horizontal axis in the graph) divided by the price of burgers (whatever is on the

vertical axis), in this case $0.50/$2 = 0.25. If you want to determine the opportunity cost quickly, just divide the

two prices.

Identifying Opportunity Cost
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