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Given reasons comment on the following statements : (i) A consumer's equilibrium isalways formed at a point on the given budget line. (ii) A consumer's equilibrium will shift to a higher indifference curve with an increase in consumer's income. |
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Answer» Solution :(i) Budget line shows all possible combinations of the two goods that a consumer can buy, GIVEN income and prices of commodities. Any other combination lying to the right of of this line will be unreasonable. Any combination lying to the left of this line results in non-spending of his income. (ii) Higher income means an increase in a consumer.s ability to purchase increased QUANTITY of both the goods, representedby arightward SHIFT of the budget line. The new budget line will from a tangent to a higher indifference curve. |
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