Suppose a consumer has total budget ₹ 20 and cost of both the goods (x1, x2) is ₹ 5, then arrange the following available bundle sets on suitable place in the table below:
(4, 3) (2, 2) (3, 1) (4, 0) (3, 3) (4, 5) (2, 3) (1, 3)
| Within budget limit | ||||
|---|---|---|---|---|
| Beyond budget limit |
OR
In table given below write the appropriate answer in the blank space a, b, c, d, e, f, g and h respectively.
| Sl. No. | % change in the price of item | % change in demand for the item | Impact on expenditure | The nature of (ed) elasticity of demand |
|---|---|---|---|---|
| 1 | +10 | − 08 | (a) | e < 1 |
| 2 | +10 | − 12 | Decrease | (b) |
| 3 | +10 | − 10 | (c) | e = 1 |
| 4 | − 10 | + 15 | (d) | e > 1 |
| 5 | − 10 | + 07 | Increase | (e) |
| 6 | − 10 | + 10 | Unchanged | (f) |
| 7 | +10 | − 06 | Increase | (g) |
| 8 | − 10 | + 18 | (h) | e > 1 |
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Start your 14-day free trial to unlock the full solution →Budget line: 5x1 + 5x2 = 20 ⇒ x1 + x2 = 4. Affordable bundles have x1 + x2 ≤ 4. OR: complete the elasticity table a=Increase, b=e>1, c=Unchanged, d=Increase, e=e<1, f=e=1, g=e<1, h=Increase.
Main question — sorting the bundles:
Total budget = ₹20 and the price of each good is ₹5, so the budget constraint is 5x1 + 5x2 ≤ 20, i.e. x1 + x2 ≤ 4. A bundle is affordable (within the budget) if its two quantities add up to 4 or less, and it lies beyond the budget if they add up to more than 4.
| Bundle (x1, x2) | x1 + x2 | Cost (₹5 each) | Position |
|---|---|---|---|
| (4, 3) | 7 | 35 | Beyond budget |
| (2, 2) | 4 | 20 | Within budget (on the line) |
| (3, 1) | 4 | 20 | Within budget (on the line) |
| (4, 0) | 4 | 20 | Within budget (on the line) |
| (3, 3) | 6 | 30 | Beyond budget |
| (4, 5) | 9 | 45 | Beyond budget |
| (2, 3) | 5 | 25 | Beyond budget |
| (1, 3) | 4 | 20 | Within budget (on the line) |
Result:
| Within budget limit | (2, 2) | (3, 1) | (4, 0) | (1, 3) |
|---|---|---|---|---|
| Beyond budget limit | (4, 3) | (3, 3) | (4, 5) | (2, 3) |
OR alternative — completing the elasticity table:
Rule used: (i) elasticity ed = |% change in demand| ÷ |% change in price|; (ii) effect on consumer expenditure (P × Q): when price rises, expenditure increases if demand is inelastic (e<1), is unchanged if unitary (e=1), and decreases if elastic (e>1) — and the reverse when price falls.
| Sl. | %ΔP | %ΔQ | ed value | Impact on expenditure | Nature |
|---|---|---|---|---|---|
| 1 | +10 | −8 | 0.8 | (a) Increase | e < 1 |
| 2 | +10 | −12 | 1.2 | Decrease | (b) e > 1 |
| 3 | +10 | −10 | 1.0 | (c) Unchanged | e = 1 |
| 4 | −10 | +15 | 1.5 | (d) Increase | e > 1 |
| 5 | −10 | +7 | 0.7 | Increase (given) | (e) e < 1 |
| 6 | −10 | +10 | 1.0 | Unchanged | (f) e = 1 |
| 7 | +10 | −6 | 0.6 | Increase | (g) e < 1 |
| 8 | −10 | +18 | 1.8 | (h) Increase | e > 1 |
| … |
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