Budget Line

A consumer's budget line characterizes on a graph the maximum amounts of goods that the consumer can afford. In a two good case, we can think of quantities of good X on the horizontal axis and quantities of good Y on the vertical axis. A budget constraint  or Budget Line represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices.

 

Term budget line Definition: The alternative combinations of two different goods that can be purchased with a given income and given prices of the two goods. This budget constraint, also termed budget constraint, plays a major role in the analysis of consumer demand using indifference curve analysis. Indifference curves represents the "willingness" aspect of consumer demand, the budget line captures the "ability". One key consumer demand topic is to analyze how consumer equilibrium is affected by changes in the price of one good. Then end result of this analysis is a demand curve. For more fascinating uses of the budget line and indifference curves, and consumer demand analysis, see income-consumption curve and price-consumption curve.

Lecture Note Series No:5b