describe the price ratio and the slope of the budget line
Answers
Answer:
The meaning of the budget line's slope or price ratio is the same as the slope of a PPF. ... This means the slope of the curve is the relative price of the good on the x-axis in terms of the good on the y-axis.
Explanation:
Price ratio:
The P/E ratio helps investors determine the market value of a stock as compared to the company's earnings. In short, the P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings.
Slope of the Budget Line :
Why does the budget line slope downward? We must understand that the quantities of goods 1 and 2 are limited (as in the real world) and the consumer has a fixed money income. So, to have more of good 1, he has to ‘give up’ some amount of good 2. This negative relation between consumption quantities of two goods causes the budget line to slope downwards.
The slope of the budget line is the amount of good 2 given up to have one more unit of good 1. The price of one unit of good 1 is P1. To have one more unit of good 1, therefore, consumption of good 2 must be reduced by P1 amount. Now, with the P2 amount, one unit of good 2 could have been bought. So, with the P1 amount, of good 2 could have been bought.
Thus, the consumer must give up units of good 2 to obtain one extra unit of good 1, i.e. the slope of the budget line is.