On what factors position of budget line depends?
Position of the budget line depends on two factors namely, income of the consumer and prices of the two goods. If prices of two goods remain unchanged, then with an increase in income, budget line of the consumer shifts to the right and vice versa.
What does budget constraint depend on?
The budget constraint is governed by income on the one hand, how much money a consumer has available to spend on consumption, and the prices of the goods the consumer purchases on the other.
What is a budget constraint line?
The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income.
What does the slope of a budget line show?
The slope of the budget line indicates the exchange ratio of the two goods x1 and x2, i.e., the rate at which he can substitute for x2 at the market place.
Why is budget line downward sloping?
Budget line is a downward sloping line because given the prices of goods X and Y, and income of the consumer, more of Good-X (on X-axis) can be purchased only when less of Good-Y (on Y-axis) is purchased. Was this answer helpful?
What is the most likely cause of the change in her budget line?
What is the most likely cause of the change in her budget line? Airline flights got more expensive. Which of the following is a characteristic of monopolistic competition?
In which direction will a decrease in income shift the budget line?
When there is an increase in income, a consumer can buy more of both goods and this shows an outward i.e. rightward shift in the budget line. On the other hand, when there is a decrease in income, the consumer’s consumption possibility decreases, and the budget line shifts inwards.
In what direction will an increase in income cause a shift in the budget constraint?
A change in a consumer’s income causes the budget constraint to shift parallel to itself. A change in the price of one of the goods causes the budget constraint to pivot from one of the end points. Assume that the consumer’s income falls to $6. The budget constraint shifts inward parallel to the original.
When income of a consumer decreases budget line will shift?
When Income Changes
For example, if José’s budget drops from $56 to $42, the budget line will shift inward, as he is unable to purchase the same number of goods as before. As a result of the shift, José’s budget line has shifted inward, leaving less consumption opportunities available.