Suppose a consumer whose budget is ₹ 500, wants to consume only two goods, Good X and Good Y. The goods are respectively priced at ₹ 50 and ₹ 25.

**Answer the following questions on the basis of the given information:****(a)** State the budget equation of the consumer.**(b) **What is the slope of the budget line?**(c) **How many units can she purchase if she spends the entire ₹ 500 on Good X?**(d)** How many units can she purchase if she spends the entire ₹ 500 on Good Y, given that the price of good Y has doubled?

#### Solution

**Given: **

Budget or Income (M)= ₹500

Price of Good X (P_{x)} = ₹50

Price of Good Y (P_{y}) = ₹ 25

**(a) **The budget equation of the consumer:

P_{x}.X + P_{y}.Y = M

Putting all the values in the given equation:**50X +25Y = 500 (Budget Equation)**

**(b) **The slope of the budget line is `-"P"_"x"/"P"_"y" = - (50)/(25) = -2`

**(c)** Units of Good X when entire income is spent on Good X implies that Y = 0. Putting the values in the budget equation we get,

50X + 25(0) = 500

50X = 500

X = 10 units

**(d) **Units of Good Y when entire income is spent on Good Y implies that X = 0 and also P_{y} has doubled implies that P_{y} = ₹50.

Putting all the values in the budget equation we get,

50(0) + 50(Y) = 500

50Y = 500

Y = 10 units