Budget line and its economic interpretation, Managerial Economics

The Budget line and its economic interpretation

The indifference curve shows us consumer preferences but it does not show us the situation in the market place.  Here the consumer is constrained by income and by the prices of X and Y.  They can both be shown by a budget line.  Suppose that product X costs K£2 per unit and product Y K£1 per unit and that the consumer's income is K£10.

A budget line shows all the combinations of two products which can be purchased with a given level of income.  The slope of the line shows the relative prices of the two commodities.

If the consumer is inside the budget line, e.g. at point E he is consuming les than the income.  Thus he can consume more of X or more of Y or more of both.  If he is on the budget line e.g. at point C he is spending the full budget.  He is said to be consuming to budget constraint.  To consume more of X e.g. moving from C to D, he must consume less of Y and vice versa.  For a given budget and given price, he cannot be at a point off the budget line to the right, e.g. at point F.

Posted Date: 11/27/2012 5:24:26 AM | Location : United States







Related Discussions:- Budget line and its economic interpretation, Assignment Help, Ask Question on Budget line and its economic interpretation, Get Answer, Expert's Help, Budget line and its economic interpretation Discussions

Write discussion on Budget line and its economic interpretation
Your posts are moderated
Related Questions
how much output should a firm produce? 80$ per unit C(Q)=40+8Q+2Qsquared

what is the goal of firm

Mrs John Robinson- 'Oligopoly is market situation in between monopoly and perfect competition in which the number of sellers is more than one but is not so large that the market pr

The use of arc elasticity in economic analysis involves a good deal of chariness since it is capable of being misinterpreted. Arc elasticity coefficients vary between the same two

Factors influencing Supply Curve State of technology     There is a direct relationship between supply and technology.  Improved technology results in more supply as with

Explain the short-run production function with one variable input with the help of assumed figures. Clearly indicate the three stages of physical product, using table and graphs.

Explain Managerial economics according to Mote and Paul Haynes, Mote and Paul:  "Managerial economics refers to those characteristics of economics and its tools of analysis mos

Illustrate the concept of present value. The Concept of Present Value: While someone borrows money for a year, there the interest rate is the price, computed as a percent

Q. Types of production function? Production function is of two different forms:  The variable proportion production function The fixed proportion production functio

Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment