Q5 of 26 Page 34

How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?

The budget line will be expressed as

4X + 5Y = 40


As income has increased so the consumer can purchase more of both the commodities and the budget line will shift parallelly outwards to A’B’ from AB


The slope of new budget line will be



- 4/5 = X/Y


X/Y = - 0.8


More from this chapter

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3

Explain why the budget line is downward sloping.

 4

A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer’s income is Rs 20.

(i) Write down the equation of the budget line.


(ii) How much of good 1 can the consumer consume if she spends her entire income on that good?


(iii) How much of good 2 can she consume if she spends her entire income on that good?


(iv) What is the slope of the budget line?

 6

How does the budget line change if the price of good 2 decreases by a rupee but the price of good 1 and the consumer’s income remain unchanged?

 7

What happens to the budget set if both the prices as well as the income double?