Question

Define budget line.What does each axis measure?What do its vertical intercept,its horizontal intercept, and its slope measure?

Answer 1

If we are considering a basket with two goods and our endowmwnt is income M . Prices of goods x & y are Px , Py respectively then Budhet line can be expressed algebrically as follows

M=Px*X+Py*Y

Each Axis measure the quantity of goods available for consumption. If economy is endowed with L commodities then we L axis and each showing scale of quantities available for consumption.

Horizontal and vertical intercept tells us about the Quantity of goods consumed wich are repreented by that perticular axis irrespective of consumption of other goods for a given budget constraint.

Its slope is always the ratio of price and denoted with negative sign whic shows for increase in one.good's price could decreasse the consumption of that good and increase the consumption of other good (Assuming these goods are normal goods) Slope here will be=Slope -Px/Py