A budget line represents the various combinations of two goods that a consumer can purchase with their given income.

Rahul wants to reach a state of maximum happiness without spending more than ₹100. In economics, this state of maximum satisfaction is called .

The budget line shows all possible combinations of two goods that a consumer can buy with their entire income at given prices. 6. Conditions for Equilibrium (IC Approach)

In reality, consumers buy multiple goods. According to this law, a consumer gets maximum satisfaction when the ratio of MU of two goods to their respective prices is equal.

Each curve represents a unique level of satisfaction. The Budget Line

He has two options to spend his money on:

| Approach | Condition 1 | Condition 2 | |----------|-------------|--------------| | Single good (Cardinal) | MUx = Px | MU diminishing | | Two goods (Cardinal) | MUx/Px = MUy/Py | Spend all income | | IC Approach (Ordinal) | MRSxy = Px/Py | Diminishing MRS / IC convex |

| Units of X | MU (utils) | Price ($) | Decision | |------------|------------|-----------|----------| | 1 | 10 | 5 | MU>P → Buy more | | 2 | 8 | 5 | MU>P → Buy more | | 3 | 5 | 5 | Equilibrium | | 4 | 2 | 5 | MU<P → Reduce |