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?

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Solution

Assume,

Good 1 = X, Good 2 = Y

Price of X $= P_{x}$ , Price of Y $= P_{y}$ , Income = M

Budget line is $P_{x} X + P_{y} Y = M$

After entering values, we get

$6 \times 6 + 8 \times 8 = M$

Income (M) = 100

where,

X = 6 units

$P_{x} = R s . 6$

Y = 8 units

$P_{y} = R s . 8$

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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 ?

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 consumed if she spends her entire income on that good?

(iv) What is the slope of the budget line?

Questions 5, 6 and 7 are related to question 4.

160

R s . 8

R s . 6

(-) 2

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