Question

A consumer's money income is Rs 200. He spends it on two goods- X and Y whose prices are Rs 5 and Rs 8 respectively. construct the budget line of the consumer. If price of X falls to Rs 4, how will it affect the consumer's budget line show with the help of diagram

Answer 1

Answer:

Dear student

1. 50x + 10y = 500

where X is units of X and y is units of y .

2. Slope of budget line -Px/ Py = -50/10 = -5.

3. If Qy = Zero, then 50x + 10y = 500 50x + 10(0) = 500 X = 10 units

4 old Py = Rs. 10 New Py = Rs. 5 (50% of Rs.10 = Rs.5)

If Py falls the consumer will be able to buy more of good Y in the same money income pushing the Y-intercept of the Budget Line away from origin, keeping the X-intercept constant, it rotates outwards and the equation will be 50x +5y = 500.

Regards