on what basis the shape of budget line depends?
Answers
Answered by
0
The knowledge of the concept of budget line or what is also called budget constraint is essential for understanding the theory of consumer’s equilibrium.
A higher indifference curve shows a higher level of satisfaction than a lower one. Therefore, a consumer in his attempt to maximise his satisfaction will try to reach the highest possible indifference curve.
But in his pursuit of buying more and more goods and thus obtaining more and more satisfaction he has to work under two constraints: first, he has to pay the prices for the goods and, secondly, he has a limited money income with which to purchase the goods. Thus, how far he would go in for his purchases depends upon the prices of the goods and the money income which he has to spend on the goods.
In order to explain consumer’s equilibrium there is also the need for introducing into the indifference curve analysis the budget line which represents the prices of the goods and consumer’s money income.
Suppose our consumer has got income of Rs. 50 to spend on two goods X and Y. Let price of good X in the market be Rs. 10 per unit and that of Y Rs. 5 per unit. If the consumer spends his whole income of Rs. 50 on good X, he would buy 5 units of X; if he spends his whole income of Rs. 50 on good Y he would buy 10 units of Y. If a straight line joining 5Xand 10Vis drawn, we will get what is called the price line or the budget line.
Thus budget line shows all those combinations of two goods which the consumer can buy by spending his given money income on the two goods at their given prices. A shows that with Rs. 50 and the prices of X and Y being Rs 10 and Rs. 5 respectively the consumer can buy l0Y and OX, or Stand IX; or 6Y and 2X, or 4y and 3X etc.
for more refer to above attachment
hope this answer help if so then mark me as brainliest
A higher indifference curve shows a higher level of satisfaction than a lower one. Therefore, a consumer in his attempt to maximise his satisfaction will try to reach the highest possible indifference curve.
But in his pursuit of buying more and more goods and thus obtaining more and more satisfaction he has to work under two constraints: first, he has to pay the prices for the goods and, secondly, he has a limited money income with which to purchase the goods. Thus, how far he would go in for his purchases depends upon the prices of the goods and the money income which he has to spend on the goods.
In order to explain consumer’s equilibrium there is also the need for introducing into the indifference curve analysis the budget line which represents the prices of the goods and consumer’s money income.
Suppose our consumer has got income of Rs. 50 to spend on two goods X and Y. Let price of good X in the market be Rs. 10 per unit and that of Y Rs. 5 per unit. If the consumer spends his whole income of Rs. 50 on good X, he would buy 5 units of X; if he spends his whole income of Rs. 50 on good Y he would buy 10 units of Y. If a straight line joining 5Xand 10Vis drawn, we will get what is called the price line or the budget line.
Thus budget line shows all those combinations of two goods which the consumer can buy by spending his given money income on the two goods at their given prices. A shows that with Rs. 50 and the prices of X and Y being Rs 10 and Rs. 5 respectively the consumer can buy l0Y and OX, or Stand IX; or 6Y and 2X, or 4y and 3X etc.
for more refer to above attachment
hope this answer help if so then mark me as brainliest
Attachments:
Similar questions