On what factors position of budget line depends?

Position of the budget line depends on two factors namely, income of the consumer and prices of the two goods. If prices of two goods remain unchanged, then with an increase in income, budget line of the consumer shifts to the right and vice versa.

What are the main determinants of a budget line?

The determinants of budget line are money income of the consumer, price of good 1 and price of good 2.

Which factor causes the shift in the budget line?

The budget line will shift when there is: A change in the prices of one or both products with nominal income (budget) remaining the same. A change in the level of nominal income with the relative prices of the two products remaining the same.

What does budget constraint depend on?

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. Opportunity cost measures cost in terms of what must be given up in exchange.

What affects the slope of a budget line?

The slope of the budget line is the is the ratio of the prices of good 1 and good 2. This would mean price of good on the x axis divided price of goods on the y axis. The slope of a budget line is always negative as it is downward sloping.

What are the properties of budget line?

Features of Budget Line



Negative slope: If the line is downward, it shows a reverse correlation between the two products. Straight line: It indicates a continuous market rate of exchange in individual combinations. Real income line: It denotes the income and the spending size of a customer.

What is the concept of budget line?

Definition: A budget line is a straight line that slopes downwards and consists of all the possible combinations of the two goods which a consumer can buy at a given market price by allocating all his/her income.

What causes a budget line to rotate?

A budget line shows the maximum consumption of a consumer at a given income level. It shifts parallelly when there is a change in income but rotates when the relative prices change.

What happens to the budget line when price increases?

If the price of Product A increases, the maximum quantity of Product A decreases at this income level, pushing the budget line inwards towards the origin. An increase in money income shifts the budget line outward to the right.

What is the other name of budget line?

The Budget line also known as the budget constraint indicates the combination of goods a consumer can purchase given his or her income and the prices in the market.

What is required for a budget set?

A Budget Set includes all combinations of two commodities that a consumer can buy within a fixed budget, i.e. their income and existing market prices. The price of different combinations of two goods is always equal to the consumer’s income.

What are the factors that determine the demand?

The factors that affect demand are as follows:

  • Price of product.
  • Consumer’s Income.
  • Price of Related Goods.
  • Tastes and Preferences of Consumers.
  • Consumer’s Expectations.
  • Number of Consumers in the Market.


What are the factors that determine the demand?

The factors that affect demand are as follows:

  • Price of product.
  • Consumer’s Income.
  • Price of Related Goods.
  • Tastes and Preferences of Consumers.
  • Consumer’s Expectations.
  • Number of Consumers in the Market.


What are the factors that determine national income?

The availability of the skill will affect the use of resources and, hence, the size of the national income.

  • Factor # 2. Technical Knowledge:
  • Factor # 3. Political Stability:
  • Factor # 4. Terms of Trade:
  • Factor # 5. Foreign Investment:


What is the most likely cause of the change in her budget line?

What is the most likely cause of the change in her budget line? Airline flights got more expensive. Which of the following is a characteristic of monopolistic competition? Advertising increases the cost of production.

What happens to the budget line when price increases?

If the price of Product A increases, the maximum quantity of Product A decreases at this income level, pushing the budget line inwards towards the origin. An increase in money income shifts the budget line outward to the right.

What happens to the budget line when income increases?

When there is an increase in income, a consumer can buy more of both goods and this shows an outward i.e. rightward shift in the budget line. On the other hand, when there is a decrease in income, the consumer’s consumption possibility decreases, and the budget line shifts inwards.