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What is the equation of budget line ?

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1 Answer

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The budget line shows all the different combinations of the two commodities that a consumer can purchase, given his money income and the price of two commodities.

The equation of a budget line is given by:

M = PX​.QX​ + PY​.QY​.

Where, M = Money income of the consumer; PX​ = Price of Good-X; PY​ = Price of Good-Y; QX​ = Quantity of Good-X; QY​ = Quantity of Good-Y.

Supposing a consumer has an income of Rs 40 to be spent on apples and oranges. Price of an orange is Rs 5 and an apple is Rs 10. With his given income and given prices of apples and oranges, the different combinations that a consumer can get of these two goods are shown in the following table:

A consumer can purchase any of the above combinations in accordance with the budget line equation.

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