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

Regressive tax, REGRESSIVE TAX A tax is said to be regressive when its...

REGRESSIVE TAX A tax is said to be regressive when its burden falls more heavily on the poor than on  the rich.  No civilized government imposes a tax like this.

Bank deposit and credit creation, Bank Deposit Bank notes and coins to...

Bank Deposit Bank notes and coins together constitute the currency in circulation.  But they form only a part of the total money supply.  The larger part of the money supply i

External debt problem, External Debt Problem External debt refers to d...

External Debt Problem External debt refers to debt owing by one country to another.  External debt is a more serious problem than internal debt because the payment of interest

Danger of over-specialising - reason for protection, Danger of over-special...

Danger of over-specialising   A country may feel that in its long-term interests it should not be too specialized. A country may not wish to abandon production of certain

Cost, classification of costs

classification of costs

#title.total revenue, if Q=120-2p is the equation for demand curve, find th...

if Q=120-2p is the equation for demand curve, find the compounding total, marginal and average revenue function

Show the empirical analysis, Q. Show the Empirical analysis? Empirical ...

Q. Show the Empirical analysis? Empirical analysis aimed at investigating nature of scale economies, degree of input complementarily orsubstitutability, or the nature and exten

Agency problems, agency problems between shareholders and government

agency problems between shareholders and government

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