Question

Explain the equation of budget line with the help of a hypothetical numerical example.

Answer 1

The budget line shows all the different combinations of the two commodities that a consumer can purchase, given his money income and the price of two commodities.
The equation of a budget line is given by:
$M=P_X.Q_X+P_Y.Q_Y$.
Where, M = Money income of the consumer; $P_X$ = Price of Good-X; $P_Y$ = Price of Good-Y; $Q_X$ = Quantity of Good-X; $Q_Y$ = Quantity of Good-Y.
Supposing a consumer has an income of Rs 40 to be spent on apples and oranges. Price of an orange is Rs 5 and an apple is Rs 10. With his given income and given prices of apples and oranges, the different combinations that a consumer can get of these two goods are shown in the following table:

Combination	Income (M)	Oranges	Apples
A	40	8	0
B	40	6	1
C	40	4	2
D	40	2	3
E	40	0	4

A consumer can purchase any of the above combinations in accordance with the budget line equation.