Question

4. A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer's income is Rs 20.
(1) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?​

Answer 1

Answer:

i) 4x+5y=20

ii) She can consume 5 units of good 1 if she spends her entire income on that

iii) She can consume 4 units of good 2 if she spends her entire income on that

iv) The slope of the budget line is -4/5

Explanation:

Good 1 (Rs4) and Good 2 (Rs5)

i) 4x+5y=20

where,

x is the number of good 1

y is the number of good 2

ii) at y=0

4x+5(0)=20

x=5

She can consume 5 units of good 1 if she spends her entire income on that

iii) at x=0

4(0)+5y=20

y=4

She can consume 4 units of good 2 if she spends her entire income on that

iv) 4x+5y=20

5y=-4x+20

y=-4/5x+4

y=mx+c

m=-4/5

The slope of the budget line is -4/5