Question

A consumer has total money income Rs.500 to be spent on two goods X and Y with prices of Rs. 50 and Rs. 20 each per unit respectively. On the basis of the information , answer the following questions:

1. Give the equation of the budget line of the consumer.
2. What is the value of the slope of the budget line?
3. How many units can the consumer buy if he is to spend all his income on good X?
4. How should the budget line change if there is afall in price of good Y?​

Answer 1

Explanation:

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Budget line is a graphical representation of all possible combination of two goods which can be purchased with given income and prices, such that cost of each of these combination is equal to the money income of the consumer.

algebraic expression of budget line

M = (Pa x Qa) + ( Pb x Qb)

500= 50Qx + 20Qy

where,

M=money income

Pa = quantity of good a

Qb= quantity of good b

Pa=price of each good a

Pb=price of each good b

$\bold \red{slope \: of \: budget \: line }= \bold \green{ \frac{( -) px}{py} }$

slope of the budget line= (-) 50 /20

slope of the budget = (-)2.5

if Qy is zero

50 Qx + 20 x 0= 500

Qx= 500/ 50

Qx= 10 units

if Qx is zero

50 x 0 + 20Qy = 500

20 Qy= 500

Qy= 25 units