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

Explain the decision-making theory, Explain the Decision-making theory ...

Explain the Decision-making theory Decision-making theory and game theory that recognise the conditions of imperfect knowledge and uncertainty under which business managers ope

Classical view on unemployment, CLASSICAL VIEW ON UNEMPLOYMENT The cla...

CLASSICAL VIEW ON UNEMPLOYMENT The classical economists as we observed in Unit 1 of this course, were of the view that full employment prevailed  in  the  economy  all the tim

Phillips curve, PHILLIPS CURVE   The Phillips  curve,  named  after  A....

PHILLIPS CURVE   The Phillips  curve,  named  after  A.  W.  Phillips,  describes  the  relationship between unemployment  and  inflation. In  1958  Phillips, then  professor a

Profit maximization theory of business, critically analysis the profit maxi...

critically analysis the profit maximisation theory of business firm and illucidet the role of profit in business

Collective bargaining, Collective bargaining Collective bargaining  ...

Collective bargaining Collective bargaining  refers to the whole process by which trade unions and employers (or their representatives) arrive at an enforce agreements.  Tra

Assignment question, define scarcity and opportunity cost.Show how these co...

define scarcity and opportunity cost.Show how these concept are useful in managerial decision making

Total cost (tc), Total Cost (TC) This is the sum of fixed costs and va...

Total Cost (TC) This is the sum of fixed costs and variable costs i.e. TC = FC + VC.

Basis of wage claims, The Basis of Wage Claims The union's demand for ...

The Basis of Wage Claims The union's demand for higher wages is normally based  on one or more of the following four arguments: 1. The cost of living argument This is

Determine the uses of managerial economics, Determine the uses of Manageria...

Determine the uses of Managerial economics Managerial economics studies the application of the principles, methods and techniques of economics to managerial problems of busine

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