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Explain the Meaning Of Budget Line - Economics

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Definition

Explain the meaning of  Budget line.

Define budget line

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Solution 1

A budget line shows various combinations of two goods which a consumer can purchase with the given income and the prices of the two goods when the consumer spends the entire income.

The equation of the budget line:

`P_1X_1 + P_2X_2 = M`

Where,

P1 - per unit price of Good 1
P2 - per unit price of Good 2
X1 - quantity of Good 1
X2 - quantity of Good 2
M - income of the consumer

Solution 2

Budget line represents the different combinations of two goods that are affordable and are available to a consumer given his/her level of income and the market prices of the goods.

Concept: Consumer's Budget
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