How does the budget line change if the consumer's income increases to Rs 40 but the prices remain unchanged? (

Exercises · Q5

Q. How does the budget line change if the consumer's income increases to Rs 40 but the prices remain unchanged? (This question is related to question 4.)

Uttar Pradesh UpmspTextbookSubjective· 2mImportance★★★★★

14% · 5/35 Questions

🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

Concept understanding — Budget Line Definition

Let’s start with something you already know from daily life.

You walk into a shop with ₹100 in your pocket. You want to buy some notebooks and some pens. A notebook costs ₹20, a pen costs ₹10. You can’t buy everything you want — you have to choose. If you buy 4 notebooks, that’s ₹80 gone, and you can afford only 2 pens with the remaining ₹20. If you buy 6 pens, that’s ₹60, and you can afford only 2 notebooks. Every possible combination of notebooks and pens that costs exactly ₹100 forms a straight line on a graph. That line is your budget line.

The precise definition

In economics, the budget line (also called the budget constraint) shows all the combinations of two goods that a consumer can buy given their income and the prices of those goods. It is not a suggestion — it is a hard limit. You cannot spend more than your income.

The NCERT Class 11 textbook (Microeconomics, Chapter 2) states it clearly:

P_1 X_1 + P_2 X_2 = M

Where:

$P_1$ = price of good 1
$X_1$ = quantity of good 1
$P_2$ = price of good 2
$X_2$ = quantity of good 2
$M$ = money income of the consumer

The equation says: total expenditure on both goods must exactly equal income. If you spend less, you are not using your full budget. If you spend more, it is impossible.

Why it matters

The budget line is the first real constraint in consumer theory. Before you can talk about what a consumer wants to buy (that comes later, with indifference curves), you must know what they can buy. The budget line separates the feasible from the impossible.

If you plot good 1 on the x-axis and good 2 on the y-axis, the budget line is a downward-sloping straight line. Its slope is $-P_1/P_2$ . That slope has a real meaning: it tells you how many units of good 2 you must give up to get one more unit of good 1. Economists call this the opportunity cost of good 1 in terms of good 2.

Note

The slope is negative because to buy more of one good, you must buy less of the other — your income is fixed.

What happens when things change?

The budget line shifts or rotates when either income or a price changes.

Income changes: If your income rises, the entire line shifts outward (parallel to the original). You can now afford more of both goods. If income falls, it shifts inward.
Price changes: If the price of good 1 falls, the line rotates — the intercept on the x-axis moves right, but the y-intercept stays the same (since the price of good 2 hasn’t changed). The slope becomes flatter. …

Start your 14-day free trial to unlock the full solution →

A rise in income with constant prices shifts the budget line rightward parallel — the consumer can now buy more of both goods, but the relative price ratio (slope) stays the same.

The budget line shows all combinations of two goods a consumer can buy given their income and the prices of those goods. Its position depends on income, and its slope depends on the price ratio. When income changes but prices do not, the entire line shifts — not tilts.

Think of it this way: if you have more money but everything costs the same, you can simply buy more of whatever you want. The trade-off between the two goods (how much of one you must give up to get more of the other) hasn't changed, because prices haven't changed. So the line moves outward, parallel to the original one.

P_1 X_1 + P_2 X_2 = M

Let’s apply this to the given change. Suppose the original income was Rs 20 (as in question 4, which this refers to), and the prices of good 1 and good 2 are Rs 4 and Rs 5 per unit respectively. The original budget line would have:

Horizontal intercept (max of good 1): $\frac{20}{4} = 5$ units
Vertical intercept (max of good 2): $\frac{20}{5} = 4$ units
Slope: $-\frac{4}{5}$

Now income rises to Rs 40. Prices stay the same. The new intercepts become:

Horizontal intercept: $\frac{40}{4} = 10$ units
Vertical intercept: $\frac{40}{5} = 8$ units
Slope: still $-\frac{4}{5}$ …

Start your 14-day free trial to unlock the full solution →

←Previous questionQ4 — A consumer wants to consume two goods. The prices of the two goods are…→Next questionQ6 — How does the budget line change if the price of good 2 decreases by a …

Q.How does the budget line change if the consumer's income increases to Rs 40 but the prices remain unchanged? (This question is related to question 4.)

🎓Unlock everything free for 14 days

Unlock everything free for 14 days