Theory of Consumer Behaviour and Demand
0 1. What do you mean by the budget set of a consumer? Ans. A budget set is a combination of consumption bundles that are available to the consumer at the existing income levels and at the existing market prices. Examples: Suppose income of a consumer is (M). He wants to buy two commodities (x and y) at given pirce (p 1 and p 2 ). 2. What is budget line? Ans. A budget line shows all the different combination of the two commodities that a consumer can purchase, given his money income and the price of two commodities. Equation of Budget line: M = P x . 3. Explain why the budget line is downward sloping. Ans. The budget line is downward sloping because when more and more of units of one goods are bought, it leads to a fall in demand of the units of other goods at a constant level of income. Slope of a budget line is P x /P y 4. A consumer wants to consume two goods. The prices of the two goods are ₹4 and ₹5 respectively. The consumer’s...