Budget line definition The budget line is a graphical delineation of all possible combinations of the two commodities that can be bought with provided income and cost so that the price of each of these combinations is equivalent to the monetary earnings of the customer.
What is budget line example?
A budget line shows the combination of goods that can be afforded with your current income. If an apple costs £1 and a banana £2, the above budget line shows all the combinations of the goods which can be bought with £40. For example: 20 apples @ £1 and 10 bananas @£2.
What is budget line and its slope?
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. 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.
What is a budget line Class 11?
Answer: A budget line represents the different combinations of two goods that are affordable and are available to a consumer; while being aware of his/her income-level and market prices of both the goods.
What else budget line is called?
price-income line or budget line.
Why budget line is called Priceline?
A budget line is called a price line too. This is because the slope of Budget Line is the ratio of prices of goods taken on each axis in 2-D diagram.
What is the equation of budget line?
Therefore, the numerical slope of the budget line is px / py which is equal to the ratio of the prices of X and Y. Since the numerical slope of the line represents the price ratio, or, the relative price of good X in terms of good Y, this line is also called the price line.
What is the slope of price line?
The slope of price line is a ratio of prices of both the commodities ‘X’ and ‘Y’. Thus, it is given by the prices of both the commodities.
What is budget line explain with diagram?
The budget line can be defined as a set of combinations of two commodities that can be purchased if whole of a given income is spent on them and its slope is equal to the negative of the price ratio.
Why is budget line straight?
A straight budget line depicts the constant slope of the budget line. 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 does the budget line mean in economics?
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 makes a budget line a budget constraint?
Budget Line Equation Budget line is also termed as a budget constraint due to the fact that even though a consumer will strive to achieve maximum utility across the indifference curve, he or she faces two very robust constraints – market price of commodities and limited income.
Which is the equation of the consumer budget line?
The consumer can choose to consume out of any of these bundles. In consumer budget, the graphical representation of all such bundles which cost the consumer exactly his money income is called the budget line. The equation of the budget line is, therefore:
Where are bundles that are outside the budget line?
Bundles which cost more than consumer’s money income (like combination C) are not available to the consumer. They lie outside the budget line. The budget line can be expressed as an equation: P B = Price of each banana. All points on the budget line ‘AB’ indicate those bundles, which cost exactly equal to ‘M’.
