InterviewSolution
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InterviewSolution
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A consumer has total money income of ₹500 to be spent on two goods X and Y with prices of ₹50 and ₹10 per unit respectively. On the basis of the given information, answer the following questions : (a) Give the equation of the budget line for the consumer. (b) What is the value of slope of the budget line ? (c) How many units can the consumer buy if he is to spend all his money income on good X ? (d) How does the budget line change if there is a 50% fall in price of good Y ? |
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Answer» (a) PxQx + PyQy = M 50Qx + lOQy = 500 (b) Slope of budget line = (-) \(\frac{50}{10}\) = (-) 5 (c) If a consumer spends all his money income on good X, it means that quantity purchased of Y is zero. In this case, budget equation will be 50Qx + 10Qy = 500 50Qx + 10(0) = 500 50Qx = 500 Qx = \(\frac{500}{50}\) = 10 units (d) Old price = ₹ 10 New price of P = ₹ 5 (Since 50% of ₹ 10 = ₹ 5) New budget line will be 50Qx + 5Qy = 500 |
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