Budget Line

Budget line is a curve which shows different combinations of two

goods like x and y which a consumer can purchase, while the
consumer’s income, price of x and price of y are given .
xPx + yPy = I
Where x represents x commodity, Px is price of x, y represents y
commodity and py is the price of y while I is the income of the
consumer.

Construction of the schedule

1. Consumer has given income $10 (I=10)
2. Price of good ‘X’ is $2 (Px=$2)
3. Price of good ‘Y’ is $1 (Py=$1)
Consumer’s Surplus
Consumer’s surplus is the difference
between what a consumer actually pays for
a commodity or service and the maximum
amount he/she would be prepared to pay.

CS= PW - PA
CS = Consumer’s Surplus
PW = Will to pay
PA = Actually pays