Q.Explain the consumer's equilibrium with the help of the indifference curves. (2 + 2 = 4)

Budget line equation: Px·x + Py·y = M.

If a consumer has income M, and buys x units of Good X at price Px per unit and y units of Good Y at price Py per unit, the TOTAL expenditure is Px·x + Py·y. The budget line represents every combination where this total expenditure exactly equals the full income: Px·x + Py·y = M. Rearranging to the familiar straight-line (y = mx + c) form: y = (M/Py) − (Px/Py)·x — a straight line with Y-intercept M/Py (the quantity of Y obtainable if the ENTIRE income is spent on …

P1x1 + P2x2 ≤ M represents the budget constraint — option (b).

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The budget line equation is M = P1x1 + P2x2 (total spending equals income), so (D) is correct.

In the RBSE/CBSE Class-12 theory-of-consumer-behaviour chapter, the budget line shows every bundle of two goods the consumer can afford when the entire money income is spent. If the consumer buys x1 units of good 1 at price P1 and x2 units of good 2 at price P2, then the amount spent on the two goods together must equal income M:

P1x1 + P2x2 = M

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₹1 worth of a good = 1 ÷ price of the good = 1/20 = 0.05 pen.

If the price of one pen is ₹20, this means ₹20 buys exactly 1 pen. So ₹1 buys 1/20th of a pen, i.e., 0.05 pen. This is simply the reciprocal relationship between the price of a good (in money per unit) and the 'real' (goods) value of money (units of the good per rupee): Real value …

The optimum bundle is on the budget line, where the budget line touches (is tangent to) the highest possible indifference curve.

A rational consumer spends the entire income, so the chosen bundle must lie on the budget line (not inside it). Among all bundles on the budget line, the consumer picks the one giving maximum satisfaction, which is the point where the budget line is tangent to the highest attainable indifference curve. At this point the slope of the budget line (price ratio) equals the slope of t …

The price ratio Px/Py is the slope of the budget line — option (a).

The budget line (price line) represents all combinations of two goods X and Y that a consumer can buy by spending her entire income M at given prices Px and Py. Its equation is Px·X + Py·Y = M. Rearranged, Y = M/Py − (Px/Py)·X, so the slope of the budget line is −Px/Py; in absolute terms the slope equals the price ratio Px/Py. Thi …

The slope of the budget line is −P1/P2 — option (b).

The budget line is P1·X1 + P2·X2 = M, where good 1 is measured on the horizontal axis. Solving for X2 gives X2 = M/P2 − (P1/P2)·X1, so the slope (ΔX2/ΔX1) is −P1/P2. It is negative because to buy more of one go …

The budget line equation is P1X1 + P2X2 = M.

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