What is budget line formula?
The budget line shows all the different combinations of the two commodities that a consumer can purchase, given his money income and the price of two commodities. The equation of a budget line is given by: M=PX. QX+PY.
What is the slope of budget line example?
The slope of the budget line is the amount of good 2 given up to have one more unit of good 1. The price of one unit of good 1 is P1. To have one more unit of good 1, therefore, consumption of good 2 must be reduced by P1 amount. Now, with the P2 amount, one unit of good 2 could have been bought.
How do you use a budget line?
To understand how households make decisions, economists look at what consumers can afford. To do this, we must chart the consumer's budget constraint. In a budget constraint, the quantity of one good is measured on the horizontal axis and the quantity of the other good is measured on the vertical axis.
How is budget line measured?
The x-intercept of the budget line (6.17) = M̅/px = 500/10 = 50 is obtained, i.e., the consumer would be able to buy 50 units of good X with all his income; and the y-intercept of the line = M̅/py = 500/5 = 100, i.e., the consumer would be able to buy 100 units of good Y with all his income.
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