Budget line
Also called: Budget constraint · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
The budget line shows all bundles that cost exactly the consumer's income M at the current prices:
p₁x₁ + p₂x₂ = M, or x₂ = M/p₂ − (p₁/p₂)x₁
Its horizontal intercept is M/p₁ (all income spent on good 1). Its vertical intercept is M/p₂ (all income spent on good 2). Its slope is −p₁/p₂. It slopes down because, once the whole budget is spent, more of one good means less of the other. Bundles below the line cost less than M. Bundles above it cannot be bought.
Example
Bananas cost ₹4 and mangoes ₹5, and income is ₹20. The budget line is 4x₁ + 5x₂ = 20. The intercepts are 5 bananas and 4 mangoes, and the slope is −4/5.
Don't confuse with
- Budget constraint: the inequality p₁x₁ + p₂x₂ ≤ M, which covers every affordable bundle. The budget line is only its boundary, where spending equals M exactly.
- Budget set: all bundles on or below the line, not just those on it.