How
you spend according to your income
Budget:
Generally, budget means an estimation of costs,
revenues and resources available to a person or organisation or a general body
over a specified period of time and planning accordingly.
Budget
line:
- It is the representation of the combination of two products that a consumer can afford with a given income using all the amount available to him.
- It represents the relative prices of the two products.
- The budget line will shift when there is a: a): change in the level of income but there is no change in the price of the two products. b): change in the price of one or both the products with the income remaining the same.
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| Reference : my book |
Let’s take an example;
Let the income of a person Shankar be 800 rupees per
week. The prices of the two products he buys regularly rice – 40 rupees per kg
and vegetables – 80 rupees per kg.
Shankar could buy 10 kg of rice and 5 kg of vegetables
with his initial budget. Or any combination that lies along the budget line
(A). for example he can buy 20 kg of rice without any vegetables or 10 kg of
vegetables without any rice.
- A FALL IN INCOME:
If the weekly income falls to 600
rupees and the price of the two products remain the same then the budget line
moves as shown in the figure. It is represented by line (B).
2. A
CHANGE IN PRICE:
If there is a change in the price of
any of the product or both the products the shift in the budget line is
accordingly. Here the price of the vegetables fall to 50 rupees and the change
is shown by line (C).
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