Question

Explain the concepts of budget line equation with the help of numerical examples.

Answer 1

The budget line lists combinations whose total cost equals income. Suppose income is ₹ 20, the price of X is ₹ 4 and the price of Y is ₹ 2. The equation is: [4X + 2Y = 20] The consumer can buy 5 units of X if all income is spent on X, or 10 units of Y if all income is spent on Y. The slope, when X is on the horizontal axis and Y on the vertical axis, is: 

\[ -\frac{P_X}{P_Y}=-\frac{4}{2}=-2 \]