Question

A consumer's budget is Rs 40. He is buying Good-1 and Good-2. Price of Good-1 is Rs 8 per unit, and of Good-2 is Rs 10 per unit. Draw a budget line on the basis of these figures.

Answer 1

Let $X_1$ denotes quantity of Good-1 and $X_2$ denotes quantity of Good-2.
Given,

Consumer's budget, i.e., consumer's income (Y) = Rs 40
Price of Good-1 ($P_1$) = Rs 8 per unit
Price of Good-2 ($P_2$) = Rs 10 per unit
We know equation of the budget line is:
$P_1{X}_1+P_2{X}_2=Y$
$8X_1+10X_2=40$
When $X_2=0$
$8X_1=40$
$\Rightarrow X_1=5$
Thus, when the entire income of the consumer is spent on Good-1, he can buy 5 units of Good-1.
When $X_1=0$
$10X_2=40$
$\Rightarrow X_2=4$
Thus, when the entire income of the consumer is spent on Good-2, he can buy 4 units of Good-2. Accordingly, the budget line touches 4 units on Y-axis and 5 units on X-axis, as in Figure. Since price ratio remains constant, budget line is a straight line.