(A) - (III), (B) - (IV), (C) - (II), (D) - (I) -> Let's understand each concept:
• Budget line (A): The equation p₁X₁ + p₂X₂ = M represents the budget line, showing all combinations where the consumer spends their entire income M on goods X₁ and X₂ at prices p₁ and p₂.
• Budget constraint (B): The inequality p₁X₁ + p₂X₂ ≤ M represents the budget constraint, indicating that total expenditure cannot exceed income M.
• Budget set (C): This refers to all bundles available to the consumer - the entire set of affordable consumption bundles that satisfy the budget constraint.
• Slope of budget line (D): The slope is -p₁/p₂, representing the rate at which the consumer can substitute good 1 for good 2 in the market (the negative of the price ratio).
The budget line is the boundary of the budget set, while the budget set includes all points on and below this line. -> correct