What is the difference between budget line and budget constraint?
The consumer has a limited income, that acts as a constraint to his/her maximizing behaviour, i.e. the budget constrains how much the consumers can consume. While budget line graphically represents the bundle of two goods which a consumer can buy with the given budget.
Is budget line the same as budget constraint?
(The difference between these two curves is that the PPF shows all the different combinations given time a time/production constraint, whereas a budget line shows different combinations given budget constraint. Otherwise, the two graphs are basically the same).
What is the difference between budget set and budget constraint?
A budget set represents those combinations of consumption bundles that are available to the consumer given his/her income level and at the existing market prices. On the other hand, budget constraint implies that the total amount spent on two goods together should be less than or equal to his/her given income level.
What is meant by budget constraint?
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 is the difference between budget and budget line?
Budget set refers to the set of possible combination of the two goods the consumer consume which he can afford from his income and given price, whereas budget line is the graphical presentation of the whole collection of the combination of the two goods which costs the consumer exactly his income.
What is the difference between budget line and indifference curve?
A budget line shows combinations of two goods a consumer is able to consume, given a budget constraint. An indifference curve shows combinations of two goods that yield equal satisfaction.
Why is budget line also called price line?
Budget line is also called price line beacause the slope of Budget Lineis the ratio of prices of goods taken on each axis in 2-D diagram.
What is budget line example?
A budget line shows the combination of goods that can be afforded with your current income. If an apple costs £1 and a banana £2, the above budget line shows all the combinations of the goods which can be bought with £40. For example: 20 apples @ £1 and 10 bananas @£2.
What is budget line in economics?
Budget line definition
The budget line is a graphical delineation of all possible combinations of the two commodities that can be bought with provided income and cost so that the price of each of these combinations is equivalent to the monetary earnings of the customer.
What is budget line Class 12?
Budget line is a line showing different combinations of two goods which a consumer can attain, at his given income and market price of the goods, e.g Px.Qx + PY.Qy=M. It can shift to the right due to following reasons: (i) When the level of income increases. (ii) When price of both goods falls.
What is budget line and budget line equation?
If all income has been used for the goods, then the budget line is expressed by the linear equation: x P x + y P y = I xP_x+yP_y=I xPx+yPy=I.
What is budget line Class 11?
Budget line is the graphical representation of all possible combinations of two goods which can be purchased with the given income and prices . Such that the cost of each of these. combinations is equal to the income of. the consumer .
What are the properties of budget line?
Properties of budget line
Budget line is a straight line. Budget line has a negative slope. The slope of the budget line is negative of the price ratio. Budget line is tangent to indifference curve.
How do you write a budget constraint?
The Budget Constraint Formula
PB = price of item B, while QB = quantity of item B consumed. Maria knows that her income to spend is $500, and what concerts and pizzas cost.
How do you make a budget constraint graph?
Budget Constraint Graph
- Step 1: Determine where the budget constraint touches each axis. It’s helpful to begin by determining where it touches the x- and y-axes. …
- Step 2: Add a line and determine its slope. …
- Step 3: Interpret the graph.
Why is budget line negatively sloped?
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.
Is budget constraint always downward sloping?
The budget line is downward sloping because a consumer can increase the consumption of good 1 only by decreasing the consumption of good 2. The consumer have limited income which is can spend to those goods between good 1 and good 2.
What determines the slope of the budget line?
It is also important to remember that the slope of the budget line is equal to the ratio of the prices of two goods. … Now, the quantity of good Y purchased if whole of the given income M is spent on it is OB. It is thus proved that the slope of the budget line BL is equal to the ratio of prices of two goods.
What is budget line draw a budget line on the basis of an imaginary example also explain why the budget line is downward sloping?
The budget line is downward sloping because, in order to increase the consumption of one good, the consumption of the other good must be reduced, with constant M. The slope of the budget line is , which implies the rate of exchange or the rate at which good 2 can be substituted for good 1.