A consumer has total money income of Rs.250 to be spent on two goods X and Y with prices of Rs.25 and Rs.10 per unit respectively.

Question

A consumer has total money income of Rs.250 to be spent on two goods X and Y with prices of Rs.25 and Rs.10 per unit respectively.

A consumer has total money income of Rs.250 to be spent on two goods X and Y with prices of Rs.25 and Rs.10 per unit respectively. On the basis of the information given, answer the following questions :

(i) Give the equation of the budget line for the consumer.

(ii) What is the value of slope of the budget line?

(iii) How many units can the consumer buy if he is to spend all his money income on good X?

(iv) How does the budget line change if there is a fall in price of good Y?

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Salim Ahmed Kawsar · Answer 1 · Feb 05, 2023 15:29:48

(i) PxQx + PyQy =M

25Qx+10QY=250

(ii) Slope of Budget Line =(-) Px/Py=(-) 25/10=(-)2.5

(iii) If Qy is to be Zero

25Qx+10Qy=250

25Qx+10(0)=250

Qx=250/25=10 units

(iv) If Py falls the consumer will be able to buy more of good Y in the same money income pushing the Y-intercept of the Budget Line away from the origin, keeping the X-intercept constant. (shifts outwards).

A consumer has total money income of Rs.250 to be spent on two goods X and Y with prices of Rs.25 and Rs.10 per unit respectively.

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