Q6 of 26 Page 34

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?

The budget line will be expressed as

4X + 4Y = 20


The slope of new budget line will be



- 4/4 = X/Y


X/Y = - 1


The new budget line will also pivot outwards around the same horizontal intercept –





More from this chapter

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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?

 5

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

 7

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

 8

Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?