How indifference curve affects the budget line?

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How indifference curve affects the budget line?

An indifference curve is drawn on a budget constraint diagram that shows the tradeoffs between two goods. All points along a single indifference curve provide the same level of utility. Higher indifference curves represent higher levels of utility.

Where the budget line is tangent to?

The consumer maximizes equilibrium at any level where the tangency point occurs when the budget line works as a tangent of the indifference curve. The combination of goods is consumer equilibrium.

How does the budget line on the indifference map moves if the consumer’s income increases?

When a consumer’s income increases, his budget line shifts parallel and upward and when his income decreases the budget line shifts downward. As the income changes, a new equilibrium is established and the consumer moves from one equilibrium point to another.

What causes indifference curve to shift?

A reduction in income will cause the budget constraint to shift to the left, which will cause it to be tangent to a lower indifference curve, representing a reduced level of utility.

How does the budget line and consumer equilibrium on the indifference map moves if the consumer’s income changes?

What is the slope of a budget line?

The slope of the budget line is the is the ratio of the prices of good 1 and good 2. This would mean price of good on the x axis divided price of goods on the y axis. The slope of a budget line is always negative as it is downward sloping.

What happens to budget line when income increases?

When there is an increase in income, a consumer can buy more of both goods and this shows an outward i.e. rightward shift in the budget line. On the other hand, when there is a decrease in income, the consumer’s consumption possibility decreases, and the budget line shifts inwards.

What causes the budget line to become steeper?

Price Change The slope of the budget line depends on the relationship between the prices of the two goods. For example, if product X is on the horizontal axis, the line will become steeper when product X becomes cheaper or product Y becomes more expensive.

What can cause an upward shift in the budget line?

The budget line will shift when there is:

• A change in the prices of one or both products with nominal income (budget) remaining the same.
• A change in the level of nominal income with the relative prices of the two products remaining the same.

What is budget line graph?

Budget line (also known as budget constraint) is a schedule or a graph that shows a series of various combinations of two products that can be consumed at a given income and prices. Budget line is to consumers what a production possibilities curve is to producers.

Can a budget line be positively sloped?

The slope of a budget line is always negative as it is downward sloping.