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 two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?

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Solution

P₁ = Rs 6

P₂ = Rs 8

x₁ = 6

x₂ = 8

Budget line = M = P₁x₁ + P₂x₂

M = 6 × 6 + 8 × 8

M = 36 + 64

M = 100

Thus, the consumer’s income is Rs 100.

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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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(i) Write down the equation of the budget line.

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Q. A consumer wants to consume two goods. The prices of the goods are Rs 4 and Rs 5 respectively. The consumer's income is Rs 20.
(i) Write down the equation of the budget line.
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(iii) How much of Good-2 can she consume if she spends her entire income on that good?
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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 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.

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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 two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?

P1 = Rs 6 P2 = Rs 8 x1 = 6 x2 = 8 Budget line = M = P1x1 + P2x2 M = 6 × 6 + 8 × 8 M = 36 + 64 M = 100 Thus, the consumer’s income is Rs 100.

P₁ = Rs 6

P₂ = Rs 8

x₁ = 6

x₂ = 8

Budget line = M = P₁x₁ + P₂x₂

M = 6 × 6 + 8 × 8

M = 36 + 64

M = 100

Thus, the consumer’s income is Rs 100.