Consumer budget states the real income or purchasing power of the consumer from which he can purchase certain quantitative bundles of two goods at a given price. Budget line is a graphical presentation of all possible combination of two goods which can be purchased with given income and price, such that the cost of each of these combinations is equal to the money income of the consumer.
Answer the following questions:
I. The bundles of budget set lie either on or below the budget line. (True/False)
II. Explain why the budget line is downward sloping.
III. The consumer is in equilibrium at a point where budget line:
a. Is above the indifference curve
b. Is below an indifference curve
c. Cuts an indifference curve
d. Tangent to an indifference curve
IV. Total utility is ______________________
Dear student
1) true, the bundles of budget set lie either on of below the budget line.
2) Budget line is downward sloping because to increase the consumption of one good, consumer has to reduce the consumption of second or other goods because consumer has limited income. He has to spend the total amount equal to less than to his income
3) the consumer is in equilibrium at a point where budget line cuts an indifference curve. (c) option correct.
Regards
1) true, the bundles of budget set lie either on of below the budget line.
2) Budget line is downward sloping because to increase the consumption of one good, consumer has to reduce the consumption of second or other goods because consumer has limited income. He has to spend the total amount equal to less than to his income
3) the consumer is in equilibrium at a point where budget line cuts an indifference curve. (c) option correct.
Regards