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.
How do you explain a budget line?
Definition: A budget line is a straight line that slopes downwards and consists of all the possible combinations of the two goods which a consumer can buy at a given market price by allocating all his/her income.
What is budget line in economics class 12?
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.
What else is budget line called?
price-income line or budget line.
What is price line is which curve?
Price line or firm’s demand curve is the same as firm’s AR curve, because AR means price, and demand curve (or AR curve) shows the relationship between price and quantity demanded of firm’s output.
Why budget line is called as 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 does the budget line represent in economics?
In other words, budget space represents all those combinations of the commodities which the consumer can afford to buy, given the budget constraint. Thus, the budget space implies the set of all combinations of two goods for which income spent on good X (i.e., P x X) and income spent on good Y (i.e., P y Y) must exceed the given money income.
What does a flatter budget line mean?
A flatter budget line means that the relative price of the good A on the horizontal axis is lower. If the greater amount is spent on the purchase of good A, the consumer can buy increased OM 2 amount of good A.
What happens to the budget line when prices decrease?
As a result, the budget line would have a rightward parallel shift from L 1 M 1 to a new position like L 2 M 2. Conversely, if the money income of the consumer decreases, prices remaining constant, the budget line would have a parallel shift to the left.
How is a budget constraint measured on a budget line?
To do this, we must chart the consumer’s budget constraint. In a budget constraint, the quantity of one good is measured on the horizontal axis and the quantity of the other good is measured on the vertical axis. The budget constraint shows the various combinations of the two goods that the consumer can afford.
