Budget set
Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
The budget set is the collection of all bundles a consumer can buy with her income at current market prices. These are all bundles that satisfy the budget constraint: p₁x₁ + p₂x₂ ≤ M. It sets the limit on choice. The consumer can pick only from inside this set, whatever her preferences.
Example
Class 12 Example 2.1: income is ₹20, bananas and mangoes both cost ₹5, and they are sold only in whole units. The budget set has 15 bundles, from (0, 0) to (4, 0). Five of them cost exactly ₹20: (0,4), (1,3), (2,2), (3,1) and (4,0). Bundles such as (3, 3) cost too much and lie outside the set.
Don't confuse with
- Budget line: only the bundles that cost exactly M. The budget set also includes every cheaper bundle below the line. With divisible goods, it is the whole triangle on and under the line.