Economics20795 marksNumerical: budget line and equilibriumBudget line and consumer equilibrium
Let us suppose a consumer has fixed income of Rs.2000. He selects two goods X and Y for consumption having prices with Rs.400 and Rs.200 respectively. a. Derive budget line. b. Show his equilibrium point when he allocates entire budget equally on two goods.
Let us suppose a consumer has fixed income of Rs.2000. He selects two goods X and Y for consumption having prices with Rs.400 and Rs.200 respectively. a. Derive budget line. b. Show his equilibrium point when he allocates entire budget equally on two goods. [5]
- Fixed Income, $M = Rs.\ 2000$ - Price of Good X, $Px = Rs.\ 400$ - Price of Good Y, $Py = Rs.\ 200$ - Condition (part b): entire budget allocated equally on X and Y The budget line shows all combinations of X and Y purchasable with the full income: $$M = Px \cdot X + Py \cdot Y$$ Substituting v...