A consumer has total money income of Rs.500 to be spent on two goods x and y with prices of Rs.50 and Rs.10 per unit respectively. On the basis of the given information, answer the following question :
(a)Give the equation of the budget line for consumer.
(b)What is the value of slope of the budget line ?
(c )How many units can the consumer buy if he is to spend all his money income on good x ?
(d) How does the budget line change if there is a 50% falls in price of good y ?

Answer

N/a

Explanation

(a)Equation of Budget line =`P_xQ_x+P_yQ_y=M` i.e., `50Q_x+10Q_y=500`
(b)Slope of Budget line =`(-)P_x/P_y=(-)50/10=(-)5`
(c )If `Q_y=0`
`50Q_x+10Q_y=500`
`50Q_x+10(0)=500`
`Q_x=500/50=10` units
The consumer can buy 10 units of good x if he spends all his money income on good x .
(d)If there is 50% fall in price of good y then Budget line would be `50Q_x+5Q_y=500`
The consumer will be able to buy more units of good y with in the given income . Budget line will rotate rightwards (Keeping the x=intercept constant).