elow kindy ans. my question pls.. what is optium point in budget line and indefference curve, and also what is the diff. between budget line and indefference curve?..
2 answers
We usually show budget lines and indifference curves in two-good worlds. But the concept can be extended to an n-good world. Given a fixed budget and fixed prices, the budget line shows the various combinations of the two goods a person could purchase and using up his entire budget. An indifference curve shows the various combinations of consumption that gives a person a set level of utility. Budget lines are linear while indifference curves are (usuallY concave to the origin. Optimum consumption USUALLY occurs when the highest possible indifference curve is tangent to the budget line.
each individual has a budget line which they follow for expenditures. If the income of the individual increases what is the effect of the budget line?