ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The market rate of exchange refers to the ratio of units sacrificed of Y to acquire specific units of X at a given market price. It indicates the slope of a budget line.

Detailed explanation-2: -Slope of budget line shows the rate at which market price allows the consumer to substitute Good-X for Good-Y. It is expressed as Px/Py.

Detailed explanation-3: -The budget line shows the combination of two goods a individual can consume with his current income. Hence, it is equal to the ratio of prices between the two goods.

Detailed explanation-4: -If the price ratio increases, the budget line pivots downward. This happens because the price ratio measures the slope of the budget line.

Detailed explanation-5: -Intuitively, the slope of the budget constraint represents how many of the goods on the y-axis the consumer must give up in order to be able to afford one more of the goods on the x-axis.