On what factors position of budget line depends?

position of the budget line depends on two factor namely income of the consumer and price of the two goods . is price of two goods remain unchanged ,then with an increase in income budget line of the consumer shifts to right .

Besides, what happens to budget line when income increases?

When there is an increase in income, a consumer can buy more of both goods and this shows an outward i.e. rightward shift in the budget line. On the other hand, when there is a decrease in income, the consumer's consumption possibility decreases, and the budget line shifts inwards.

Also, what is budget line Why does it slopes downward? The slope of a budget line measures the amount of good 2 that must be sacrificed in order to get an additional unit of good 1, as the conusmer income (M) is fixed. the budget line is downward because , in order to increase the consumption of one good, the consumption of other good must be reduced , with constat M.

Then, what is the difference between a shift in the budget line and a rotation in the budget line?

Answer: This rightward or leftward parallel shift of the budget line is known as “shift” of the budget line. On the other hand, if the money income of the consumer remaining constant, the price of one of the goods changes, then it is known as the “rotation of the budget line”.

What is the equation of budget line?

The budget line shows all the different combinations of the two commodities that a consumer can purchase, given his money income and the price of two commodities. The equation of a budget line is given by: M=PX. QX+PY.

What is budget line with diagram?

Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

What are the properties of budget line?

Properties of Budget Line Negative Slope: It slopes downward showing an inverse relationship between the buying of the two goods. Straight Line: It is a straight line which denotes the constant market rate of exchange at each combination.

What is the slope of budget line?

The budget line can be defined as a set of combinations of two commodities that can be purchased if whole of the given income is spent on them and its slope is equal to the negative of the price ratio.

What is the utility maximization rule?

The Utility Maximization rule states: consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility. It is marginal utility per dollar spent that is equalized.

What determines the slope of the budget constraint?

The slope of the budget constraint is determined by the relative price of the choices. Choices beyond the budget constraint are not affordable. Opportunity cost measures cost by what is given up in exchange.

What happens to normal goods when income increases?

The demand curve for a normal good shifts out when a consumer's income increases as shown on the left. It shifts inward when a consumer's income decreases. An inferior good is one whose consumption decreases when income increases and rises when income falls.

What do you mean by budget line?

Budget Line. Definition: The Budget Line, also called as Budget Constraint shows all the combinations of two commodities that a consumer can afford at given market prices and within the particular income level.

Why is budget line a straight line explain?

The slope of the budget line given by the ratio of the price of the two goods (- P1/ P2). Constant slope and thereby, straight line is in accordance with the assumption that the prices of the two goods are given.

What is price line Class 11?

"A budget line or price line represents the various combinations of two goods which can be purchased with a given money income and assumed prices of goods". Given the assumed income and the price, of the two goods, the consumer can purchase various combination of goods or market combination of goods weekly.

When can a budget line shift?

A budget line shows the combinations of two products that a consumer can afford to buy with a given income – using all of their available budget. The budget line will shift when there is: A change in the prices of one or both products with nominal income (budget) remaining the same.

What is the relationship between income and demand?

In the case of inferior goods income and demand are inversely related, which means that an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand. For example, necessities like bread and rice are often inferior goods.

What is consumer equilibrium?

Consumer's equilibrium is a situation when he spends his given income on the purchase of one or more commodities in such a way that he gets maximum satisfaction and has no urge to change this level of consumption, given the prices of commodities. (B) Condition Of Consumer Equilibrium In Case Of Single Commodity.

What is budget set in economics?

Budget set. From Wikipedia, the free encyclopedia. A budget set or opportunity set includes all possible consumption bundles that someone can afford given the prices of goods and the person's income level. The budget set is bounded above by the budget line.

What are the properties of indifference curve?

There are four important properties of indifference curves that describe most of them: (1) They are downward sloping, (2) higher indifference curves are preferred to lower ones, (3) they cannot intersect, and (4) indifference curves are convex (i.e. bowed inward).

What do you mean by indifference curve?

Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

What is budget line example?

Budget Line. A budget line is a constraint in that it limits the total potential consumption of a consumer. Only such combination of two goods is attainable which falls within or on the budget line. Any combination of two goods which falls outside the budget line is unattainable.

What is the principle of diminishing marginal utility?

The principle of diminishing marginal utility states that as an individual consumes more of a good, the marginal benefit of each additional unit of that good decreases. The concept of diminishing marginal utility is easy to understand since there are numerous examples of it in everyday life.

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