Why does MRS diminish 1 The want for a particular good is suitable so that as

Why does mrs diminish 1 the want for a particular

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Why does MRS diminish?
Consumption Possibilities- Budget Line
Budget Line Budget Line Equation, Where, Px= per unit price of commodity X Py = per unit price of commodity Y X = amount of commodity X Y= amount of commodity Y M= stands for money income > The vertical intercept or y-intercept is M/P y That is, > The horizontal intercept or x-intercept is M/P y That is,
– Y) y
- - - Example Suppose, consumer has got income of tk 50, the price of commodity X and Y is tk 10 and tk 5 respectively. The budget line becomes: The vertical intercept is: 50/5=10 The horizontal intercept is: 50/10= 5 The slope of BL is:
Effect of Changes in Price on Budget Line Suppose BL is the original budget line for given certain prices of goods X and Y and certain income. if Px falls and all other things remain same, consumer will be able to buy more of good X than before with his income. The quantity of X increases from OL to OL’. Since the price of Y remains same the quantity of Y purchase will remain same, as OB. And there will be no shift of point B. As a result the BL line rotates to the right, and the new budget line is OL’. On the other hand if Px rises and all other things remain same, consumer will be able to buy less of good X than before with his income. The quantity of X decreases from OL to OL’’. Since the price of

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• Spring '15