Budget line and its economic interpretation, Managerial Economics

Assignment Help:

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.


Related Discussions:- Budget line and its economic interpretation

Dynamics of unemployment and real wages, Dynamics  of Unemployment and  ...

Dynamics  of Unemployment and  Real  Wages through Productivity Shocks   The model  that you  are  studying here  is  in  the  tradition of  the  real  business cycle theory th

Central bank, CENTRAL BANK A modern central bank performs so many funct...

CENTRAL BANK A modern central bank performs so many functions of different nature that it is difficult to give any brief yet accurate definition of a central bank. Any definiti

Marris Model, Explaination of the Marris Model

Explaination of the Marris Model

What is risk and production analysis, What is Risk and Production analysis ...

What is Risk and Production analysis Risk analysis:  Various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk.

Illustrate about demand theory, Illustrate about Demand theory Demand t...

Illustrate about Demand theory Demand theory is one of the core theories of consumer behaviour andmicroeconomics. It attempts at answering questions regarding the magnitude of

Deemand forecasting, Q 3. What is Demand Forecasting? Explain in brief vari...

Q 3. What is Demand Forecasting? Explain in brief various methods of forecasting demand.

Demand forecasting, what is the importance of demand forecasting to manager...

what is the importance of demand forecasting to managers

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd