What is budget line?
A budget line represents the different combinations of two goods that are affordable and are available to a consumer; while being aware of his/her income-level and market prices of both the goods.
Let 1
x be the amount of good 1.
2x be the amount of good 2.
P1 be the price of good 1.
P2 be the price of good 1.
P1 X1 = Total money spent on good 1.
P1 X1 = Total money spent on good 2.
Then, the budget line will be:
P1 X1+ P2 X2=M
All the consumption bundles on the budget line cost the consumer exactly the equivalent of his/her income.
Popular Questions of Class 12 Micro Economics
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
Distinguish between a centrally planned economy and a market economy.
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
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.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4. - Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
- Q:-
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
- Q:-
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule.
Price (Rs.) SS1 (units) 0
1
2
3
4
5
6
7
80
0
2
4
6
8
10
12
14 - Q:-
Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.
- Q:-
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
- Q:-
In what respect do the supply and demand curves in the labor market differ from those in the goods market?
- Q:-
Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2
if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8
respectively. How much is the consumer’s income? - Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
What do the long-run marginal cost and the average cost curves look like?
- Q:-
The following table shows the total cost schedule of a competitive firm. It is given that the price of the good is Rs 10. Calculate the profit at each output level. Find the profit maximising level of output.
Output TC (Rs.) 0
1
2
3
4
5
6
7
8
9
105
15
22
27
31
38
49
63
81
101
123 - Q:-
Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation.
- Q:-
What are the characteristics of a perfectly competitive market?
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