Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Consumer behaviour

Question:

Arrange the following statements showing the change in budget set due to change in income.

(A) The equation of the budget line is $p_1 x_1 + p_2 x_2 = M'$.
(B) Consumer's income increases from M to M', but the price of goods remains constant.
(C) The set of available bundles depends upon prices and the income of the consumer.
(D) Consumers can buy more of the goods at the prevailing market prices.

Choose the correct answer from the options given below:

Options:

(A), (B), (C), (D)

(B), (A), (C), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

Correct Answer:

(C), (B), (D), (A)

Explanation:

The correct answer is Option (4) → (C), (B), (D), (A) 

(C) The set of available bundles depends upon prices and the income of the consumer. This statement introduces the fundamental concept of the budget set and what determines it. This should be the starting point as it sets the context.

(B) Consumer's income increases from M to M', but the price of goods remains constant. This statement describes the specific change that is happening – an increase in income while prices are stable.  

(D) Consumers can buy more of the goods at the prevailing market prices. This statement describes the implication or consequence of the increased income on the consumer's purchasing power, which is reflected by the shift in the budget line (allowing more consumption).

(A) The equation of the budget line is $p_1 x_1 + p_2 x_2 = M'$. This statement provides the mathematical representation of the new budget line after the income change (M' replaces M). This equation reflects the direct impact of the income change.