Calculating Budget Line for Economics (microeconomics)

Tutorial on how to calculate the budget line. Typically taught in a principles of economics, microeconomics, or managerial economics course.

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• managerial economics
• budget lines
• indifference curves
• microeconomics

[Zk1f3r]

Basically is this right

If average spending on bread is 91.67 and average spending on veg is 1075.00 the total spending on both is 1166.67 when you add them together.

The price of Veg is 68 and the price of bread is 11.83. If i want to find out the quantity of veg I divide the total spending 1166.67 by 68 and that equals 17.15 and for bread i do the same which equals 98.61 (1166.67 divided by 11.83). Therefore the quantity of veg is 17.15 an bread 98.61. Is this right?

[economicsfun]

@Zk1f3r So...

Total Income = 1166.67

Price of Bread = 68

Price of Veg = 11.83

Total Income / Price of Bread = Total Quantity of Bread (if all income spent on bread)

Total Income / Price of Veg = Total Quantity of Veg (if all income is spent on veg).

On the horizontal axis is Quantity of Veg

On the vertical axis is Quantity of Bread

[Zk1f3r]

(2) Pick one city from the 8 cities listed overleaf; use data in this document to draw a budget line. Place the quantity of vegetables on the horizontal axis, and the quantity of bread on the vertical axis; add a point on the budget line to show actual spending (on vegetables & bread) in that city. Using the same graph axes, repeat this process for 4 other cities. Indicate the name of the city, on each of your 5 lines.

Is the question but me and my friend are bloody confused

[economicsfun]

@Zk1f3r you want to find out where the line hits the x axis (horizontal axis) and the y axis (vertical axis). If all income is spent on vegetables then zero income is spent on bread. Bread = 0 and this is where the line hits the horizontal axis. If all income is spent on bread then vegetable is zero and this is where the line hits the y axis.

hope this removes your bloody confusion. ask if you need more help.

[Zk1f3r]

On this graph I'm trying to work out it doesn't say income. It says average spending of bread and vegetables then has the price of each. Do i add both the average spending in order to get total income?. i.e...

Average spending on bread = 91.67

Average spending on veg = 1075.00

Price of veg = 68

Price of bread = 11.83

[economicsfun]

@Zk1f3r Not sure I understand your question but let me give it a go....

If you take total income spent on bread and income spent on vegetables should equal total income.

Price of Veg x Quantity of Veg = Income spent on Veg

Price of Bread x Quantity of Bread = Income spent on Bread

Income Spent on Veg + Income Spent on Bread = Total Income.

Does this help?

[Zk1f3r]

@economicsfun Ok this makes sense its just the average spending that threw me off. I'll have to try and find more about why they put average spending there instead. I just hope that if you add the average spending of the two it makes total income

Thank you so much for your time you've cleared stresses for now, cheers :)

[Zk1f3r]

Prices are in Rupees per Kg btw

[Zk1f3r]

@economicsfun Yes that does help thanks for your time. But, What I'm trying to work out is the quantity so i can plot a budget graph for 5 different cities. The first city has the numbers i gave you earlier. Me and my friend have added the average spending together and treated that as the total income and divided that by each price of the good which equals the quantity. Because from what i understand Q = overall spending / price. Simply, how could you plot a budget line from that data earlier?.