Answer to Question #98105 in Microeconomics for mantey prince

Question

4. Suppose, the price of commodity A is $80 and that of commodity B is $100.
(a) If the consumer has an income of $1200, form the consumer budget line equation.
(b) If the consumer income increases from $1200 to $2000. On the same graph draw the budget line in (i) and (ii) and show the direction of change.
(c) Repeat the exercise in (ii) when the consumer income falls from $120 to 105

Answer 1

(a) If the consumer has an income of $1200, then the consumer budget line equation is 80Qa + 100Qb = 1200.

(b) If the consumer income increases from $1200 to $2000, then the budget line equation is 80Qa + 100Qb = 2000, so the budget line will shift to the right.

(c) If the consumer income falls from $1200 to 1050, then the budget line equation is 80Qa + 100Qb = 1050, so the budget line will shift to the left.