Budget line is a line showing different combinations of two goods which a consumer can attain, at his given income and market price of the goods, e.g Px.Qx + PY.Qy=M. It can shift to the right due to following reasons: (i) When the level of income increases. (ii) When price of both goods falls.
Why is budget line a straight line Class 11?
A straight budget line depicts the constant slope of the budget line. Constant slope and thereby, straight line is in accordance with the assumption that the prices of the two goods are given.
What are the two characteristics of budget line?
The two essential components of a budget line are: The purchasing power of a consumer, i.e. his/her income; The market price of both commodities.
Why price line is a straight line?
The price line or the budget line shows the various combinations of the two goods that the consumer can afford, given his income and the prices of both the goods. Since the prices of the two goods are constant, the slope of the budget line is also constant. Hence, the budget line is a straight line.
How do you plot a budget line?
Plotting the budget constraint is a fairly simple process. Each point on the budget line has to exhaust all $56 of José’s budget. The easiest way to find these points is to plot the intercepts and connect the dots. Each intercept represents a case where José spends all of his budget on either T-shirts or movies.
What does the equation on the budget line mean?
The above budget-line equation (1) implies that, given the money income of the consumer and prices of the two goods, every combination lying on the budget line will cost the same amount of money and can therefore be purchased with the given income.
What do you need to know about the budget line?
The budget line assumes that the market prices of the two commodities taken into consideration will always be in the knowledge of the consumer. Any alterations in that regard will make the line infeasible. Information on Consumer Income It presumes that the income of the consumer pertains to a limited amount and that it is known accurately.
What is a budget line, price line or budget constraint?
A budget line or budget constraint illustrates the alternative combinations of two different goods that can be purchased with a given income based on the prices of the two goods. Or budget line indicates the combination of commodities that a consumer can buy with a given income at a given set of prices.
What does the slope of the budget line mean?
The slope of the budget line or price line shows that how many units of Y the consumer will give up to purchase one more units of X with the given income prices of goods.
