Q8 of 36 Page 1

Explain the meaning of ‘Budget set’ and ‘Budget line’.

Budget Set - It refers to the set of all possible combinations of two commodities that a consumer can afford to buy from his income and at given prices.

Budget Line – It refers to the set of various combinations of two commodities which costs the consumer exactly his income.


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7

Explain the problem of ‘‘how to produce’’.

 8

Distinguish between ‘increase in demand’ and ‘increase in quantity demanded’ of a good.

 9

Explain with the help of a numerical example, the meaning of diminishing marginal rate of substitution.

 10

Define market supply. Explain the factor ‘input prices’ that can cause a change in supply.