It is better to be calculative trader rather than desperately trading. Because whenever you would exchange without any planning and calculation, it may drive you to a great loss.
A lot of traders come in exchange without token and currencies knowledge and proper planning, most of them even don't have any knowledge about accounting, economics, finance and tradings, that's why sometimes they make some profit and at the end they think that it is a profitable area.
So they invest a lot and whenever they lose their investment, they think that it was their bad luck.
But actually in cryptocurrency or any other virtual trading, there are some calculations and you have to be rational to make some business decisions.
As usual I like to explain cryptocurrency and other virtual token tradings relating with the classical economics. So today I will discuss how you will use budget line or priceline in your trading.
Let us have a discussion relating to classical economics in your cryptocurrency trading..
Price Line or Budget Line:
A price line or budget line represents all possible combinations of two goods, that consumer can purchase with his given income at the given prices of two goods.
Suppose a consumer has amount of $4.00 to be spent on HBDs & Hive token. Price of Hive token is $0.25 per Hive token & HBDs $1.00 per HBD. The different combinations that a consumer can get of these goods with his given income are shown below:
If the consumer wants to buy Hive token only, he can get a maximum 16 Hive token with his entire income of $ 4.00. On the other hand, if he wants to buy HBDs only, he can get a maximum 4 HBDs with his entire income.
Within these two extreme limits, the other possible combinations that a consumer can get are (1 HBD + 12 Hive token), (2 HBDs + 8 Hive token), (3 HBDs + 4 Hive token).
In this diagram different combinations of two items have been shown by AB Line. It is called Price Line.
It is presumed that the consumer spends his entire income on the consumption of these two items, so AB price line is the limit line of the consumer.
Slope of the price line refers to the price ratio of two items, HBDs and Hive token.
Shifting of the Price Line
The position and slope of the price line or budget line depends upon two factors-
• Income of the consumer and
• Price of the two goods that the consumer wants.
1. Due to change in Income:
If prices of the goods remain unchanged; then with an increase in income, the price line will shift to the right & with a decrease in income it will shift to the left its slope remaining unchanged.
The diagram indicates that when income of the consumer was $ 4.00, he could buy those combinations of HBDs & Hive token as represented by price line AB.
With increase in income to $ 5.00, price line shifts to the right as shown by A’B’ line & if income decreases to $ 3.00, price line shifts to the left as shown by A”B” line.
The slope remaining the same as the shifted lines are parallel to the AB.
2. Due to change in price of one commodity:
If income of the consumer & price of a commodity remains unchanged, but the price of other commodity changes, the slope of price line will also undergo a change.
One end of the price line will remain at its place, but the other end touching the axis of that commodity whose price has changed to will shift forward from its original place if the price has fallen or shift backward if the price has risen.
It is clear that when the price of HBD falls, slope of the price line will change from AB to AC.
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