A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer’s income is Rs 20.
Write down the equation of the budget line.
The equation of the budget line is 4x₁ + 5x₂ = 20, where x₁ is the quantity of good 1 and x₂ is the quantity of good 2.
How much of good 1 can the consumer consume if she spends her entire income on that good?
If the consumer spends her entire income on good 1, she can consume 5 units of good 1.
How much of good 2 can she consume if she spends her entire income on that good?
If the consumer spends her entire income on good 2, she can consume 4 units of good 2.
What is the slope of the budget line?
The slope of the budget line is -4/5.
Explanation
This question tests understanding of the budget line concept from NCERT Class 12 Economics. The budget constraint p₁x₁ + p₂x₂ M becomes an equality (budget line) when the consumer spends her entire income. For maximum consumption of one good, set the other good's quantity to zero and solve. The slope represents the rate at which the market allows substitution between goods, calculated as -p₁/p₂.