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

Demand, what is demand estimation

what is demand estimation

Elasticity of demand, Definition of Elasticity Is defined as the ratio...

Definition of Elasticity Is defined as the ratio of the relative change of one (dependent) variable to changes in another (independent) variable, or it's a percentage change o

Calculate the optimal lifetime incomes and firms, Dan and Ann are chemical ...

Dan and Ann are chemical engineers working for a biotech company. Each of them would like to be promoted to a managerial position, but only one of them can get the job. Their super

Long-term policies to cure balance of payment deficits, Long-Term Policies ...

Long-Term Policies One long term option of tackling balance of payments deficit is export promotion .  In the long run this is the best method of improving a balance of payme

Structure of population and supply of labour, THE STRUCTURE OF POPULATION A...

THE STRUCTURE OF POPULATION AND SUPPLY OF LABOUR The structure (also called age distribution or composition) of population, or the number of people in the different age groups

Resources, “Managerial economics involves use of economic analysis to make ...

“Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.

Oligopoly, pricing under oligopoly

pricing under oligopoly

Bank rate , Bank Rate Bank rate is the rate at which the central bank ...

Bank Rate Bank rate is the rate at which the central bank gives loans to the commercial banks against the security of government and other approved first class securities. In

T, Theory of consumer behavior

Theory of consumer behavior

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