Question

Draw the budget line and throw light on the feasibility and non-feasibility area of budget line.

Answer 1

The budget line divides the commodity space into two parts which may be termed as:

(i) Feasibility Area: The area recumbent in the South-West of the budget line is feasibility area. Any combination of goods X and Y which is represented by a point in this area (ie.g., point A) or on the boundary line (i.e., budget line) is a feasible combination, given M, P_x and P_y.

(ii) Non-Feasibility Area : The area in the North-East of the budget line is non-feasibility area because any point falling in this area, e.g.,point B, is unattainable (given M, P_x and P_y).