Question
What is a budget line? Explain why is it a straight line?
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Answer
Budget line is the graphical presentation of the different combinations of good X and good Y which can be purchased with the given money income. 
$\text{P}_\text{X}.\text{X}+\text{P}_\text{Y}.\text{Y}=\text{M}$
Where M is Money income. Px and Py are prices of X and Y respectively and X and Y are quantities of good X and good Y respectively. Budget line is a straight line because the market rate of exchange (MRE) between the two goods is constant and also because the price of the two goods are constant.Need a full question paper?
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