Alisha's income to be spent on X and Y is Rs. 1000. Price per unit X = 10 and Y=20. a. Draw budget line b. If income of Alisha decreases from 1000 to 500 show its impact on budget line Note. Pls make only one graph to show the change. Do not write anything, just draw and label the graph completely.
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11th
Economics
Consumer Equilibrium and Demand
Consumer Equilibrium
A consumer's budget is Rs 4...
ECONOMICS
A consumer's budget is Rs 40. He is buying Good-1 and Good-2. Price of Good-1 is Rs 8 per unit, and of Good-2 is Rs 10 per unit. Draw a budget line on the basis of these figures.
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ANSWER
Let X1 denotes quantity of Good-1 and X2 denotes quantity of Good-2.
Given,
Consumer's budget, i.e., consumer's income (Y) = Rs 40
Price of Good-1 (P1) = Rs 8 per unit
Price of Good-2 (P2) = Rs 10 per unit
We know equation of the budget line is:
P1X1+P2X2=Y
8X1+10X2=40
When X2=0
8X1=40
⇒X1=5
Thus, when the entire income of the consumer is spent on Good-1, he can buy 5 units of Good-1.
When X1=0
10X2=40
⇒X2=4
Thus, when the entire income of the consumer is spent on Good-2, he can buy 4 units of Good-2. Accordingly, the budget line touches 4 units on Y-axis and 5 units on X-axis, as in Figure. Since price ratio remains constant, budget line is a straight line.
