Budget Line and Consumers Equilibrium

Rajneesh Kler rajneesh.kler@gdgoenka.ac.in GD Goenka University BBA Program Semester 1

The Budget Line Income Line

Assumption of Given Money Income and goods prices
How can we summarize in graphic manner the combinations of two goods that a consumer can buy Note that the IC shows the preference but not the combinations bought actually

The budget line shows the affordability of the consumer

The Budget Line

Qx X Px + Qy X Py = M Px = 5 Py = 10 M = 100 What is the maximum amount of good X that this consumer can afford to buy? What is the maximum amount of good Y that this consumer can afford to buy?

Qy
10

Maximum Amount of Y which a consumer can buy if he chose not to consume X

The Budget Line Shows the locus of all possible combinations of good X and Y which a consumer can buy given his money income Maximum Amount of X which a consumer can buy if he chose not to consume Y

Px/Py

The Slope of the Budget Line

20

Qx

Consumers Equilibrium
A consumer is said to be in Equilibrium when he is buying such a combination of goods as leaves him with no tendency to rearrange his purchases of goods (note the assumption regarding the analysis)

Good Y

It is reached when line is tangent to possible indifference indifference map consumer. Please assumptions again.

the budget the highest curve in the of the note the

E IC4 B IC2 IC1 O Good X IC3