Shift of the budget line
Also called: Change in budget set, pivoting of budget line · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
The budget line moves when income or prices change.
- Income changes, prices fixed: the line makes a parallel shift, because the slope −p₁/p₂ stays the same. It moves outward when income rises and inward when income falls.
- One price changes, income and the other price fixed: the line pivots. If p₁ rises, the line pivots about the vertical intercept M/p₂. It gets steeper, and the horizontal intercept M/p₁ falls. If p₁ falls, the line gets flatter. A change in p₂ pivots it about M/p₁ instead.
Example
Take prices ₹4 and ₹5 and income ₹20. The intercepts are 5 and 4. If income rises to ₹40, the line shifts out in parallel, with intercepts 10 and 8. If instead the price of good 2 falls to ₹4, the vertical intercept rises to 5 and the slope becomes −1. Doubling income and both prices together leaves the line unchanged.
Don't confuse with
- Shift in the demand curve: that is caused by changes in income, tastes or related prices, and it moves a demand curve. A budget-line shift only changes what the consumer can afford.