Explain why the budget line is downward sloping. - Vidyadip

Question

Explain why the budget line is downward sloping.

✓

Answer

The budget line is downward sloping because a consumer can increase the consumption of good 1 only by decreasing the consumption of good 2. The consumer have limited income which is can spend to those goods between good 1 and good 2.
The slope of the budget line is $\frac{-\text{P}_1}{\text{P}_2}=\frac{\triangle\text{x}^2}{\triangle\text{x}_1},$ which implies the rate of exchange or the rate at which good 2 can be substituted for good 1.

Need a full question paper?

Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.

Start Generating Free

Explore more

More "3 Marks Question" from Theory of consumer behaviour→Theory of consumer behaviour — all question types→Economics STD 11 Commerce question papers→CBSE Board STD 11 Commerce question papers→CBSE Board question paper generator→

Similar questions

Price Elasticity of Demand of a good is (-) 1. At a given price, the consumer buys $60$ units of the good. How many units will he buy if the price falls by $10\%?$

Explain the implication of large number of buyers in a perfectly competitive market.

When does a production function satisfy decreasing returns to scale?

The demand for a good doubles due to a 25 percent fall in price. Calculate its price elasticity of demand.

State three causes of increase in supply.

“Only 'Scarce Goods' attract price." Comment.

Is a producer in equilibrium under the following situations?

When Marginal Revenue is greater than Marginal Cost.
When Marginal Revenue is equal to Marginal Cost.

Give reasons for your answer.

Suppose there are two consumers in the market for a good and their demand functions are as fallows:
$d_1 (p) = 20 - p$ for any price less than or equal to $20$.
$d_1 (p) = 0$ at any price greater than $20$.
$d_1 (p) = 30 - 2p$ for any price less than or equal to $15$.
$d_1 (p) = 0$ at any price greater than $15$.
Find out the market demand function.

List the three different ways in which oligopoly firms may behave.

If diminishing marginal returns will set in after the very first unit of labour is employed? What do the average product, and marginal product curves look like in this case?