Question

Briefly explain the budget set with the help of a diagram.
(4 marks question) ​

Answer 1

Answer:

The budget set is the collection of products that the consumer can buy with is income at the prevailing market prices. The budget set is also known as opportunity set. It includes all the bundles (all possible combination of two goods) which the consumer can purchase with his given level of income. The budget equation can be written as follows: P1X1 + P2 X2 ≤ M.Read more on Sarthaks.com - https://www.sarthaks.com/633146/briefly-explain-the-budget-set-with-the-help-of-a-diagramConsider, for example, a consumer who has Rs.20 and suppose both the goods are priced at Rs.5 and are available only in integral units. The bundles that this consumer can afford to buy are (0,0), (0,1), (0,2), (0,3), (0,4), (1,0), (1,1), (1,2), (1,3), (2,0), (2,1), (2,2), (3,0), (3,1) and (4,0). Among these bundles, (0,4), (1,3), (2,0), (2,2), (3,1) and (4,0) cost exactly Rs.20 and all the other bundles cost less than Rs.20. If both the goods are perfectly divisible, the consumer’s budget set would consist of all bundles (x1, x2) such that x1 and x2 are any numbers greater than or equal to 0 and P1X1 + P2 X2≤ M. The budget set can be represented in a diagram as -of-a-diagramQuantity of bananas is measured along the horizontal axis and quantity of mangoes is measured along the vertical axis. Any point in the diagram represents a bundle of the two goods. The budget set consists of all points on or below the straight line having the equation P1X1 + P2 X2≤ M.

Explanation:

Hope it's helpful to you

Answer 2

Answer:

Budget set is defined as the collection of all the bundles that the consumer can buy with his income at the prevailing market price. consumers behavior is constrained by his budget. his expenditure should be less than or equal to his budget.

Example: a consumer has an income of Rs 20 there are only two goods to be bought they are x1 and x2 both the goods are priced at Rs 5 and are available only in integral units. then the consumer can buy with 4 units of good x1 or 4 units of good x2 or a combination of both. that is,(1,3),(2,2), and (3,1). the consumer budget cannot afford any larger combinations. this can be illustrated through the following diagram

Explanation:

All bundles in positive quadrant which are on or below the line are included in the budget set.The equation of the line is,

p1x1+p2x2=M

The line consists of all bundles which costly exactly equal to M.This line is called the budget line.