If a consumer faces the Budget line equation: 20 X + 10 Y = 500. Answer the following questions: (i) What will be the slope of budget line ? (ii) How many units would he be to buy if the entire sum of Rs 500 is to be spent on Good X only? show calculations. (iii) Construct a new budget line equation if the price of Good Y falls by 50%. Also, write the slope of the new budget line equation.

If a consumer faces the Budget line equation: 20 X + 10 Y = 500. Answe

1.	If a consumer faces the Budget line equation: 20 X + 10 Y = 500. Answer the following questions: (i) What will be the slope of budget line ? (ii) How many units would he be to buy if the entire sum of Rs 500 is to be spent on Good X only? show calculations. (iii) Construct a new budget line equation if the price of Good Y falls by 50%. Also, write the slope of the new budget line equation.
Answer» SOLUTION :(i) The SLOPE of a budget LINE measures the amount of change in good Y required per unit of change in good X along the budget lime. It is measured as follows : Slope `= (-P_(X))/(P_(Y)) = (-20)/(10) = -2` (ii) If entire sum of Rs 500 is to be spent on Good X, then: `20 X + 10 (0) = 500` or `20 X = 500` or, `X = 500 div 20 = 25` units. (III) If price of Good Y falls by 50%, then new price of Good Y will be Rs `10 - 50 %` of Rs `10 - Rs 5`. New Budget Line Equation will be: `20 X + 5Y = 500` Slope `= (-P_(X))/(P_(Y)) = (-20)/(5) = - 4`