Question

On what factors, does the position of the budget line depend?

Answer 1

Position of the budget line depends on two factors namely, income of the consumer and prices of the two goods. If prices of two goods remain unchanged, then with an increase in income, budget line of the consumer shifts to the right and vice versa. Similarly, if income of the consumer remains unchanged, the budget line will shift to the right when there is a proportionate fall in the prices of both goods X and Y and vice versa. Thus, if the prices of both goods X and Y are reduced to half, the budget line will shift to the right showing twice the possible purchase of X and Y than before.