Budget Line: Meaning, Definition, Example
· Budget Line (Price Line) Suppose the consumer is consuming two goods Q 1 and Q 2 . Difference levels obtained from different combination of these two goods can be known from the indifference map of consumer. The indifference map tested and preferences of the consumer. But which particular combination of Q 1 and Q 2 will he consume? To determine it we have to know the prices of two goods and the money income of the consumer. If the prices of the two goods and money income of the consumer are given, we can get the budget line of the consumer . A budget (Price) line is the locus of those commodity combinations which can be purchased with the given money income and given prices. The combination on a given budget line are equally to the consumer. So, with the given income and prices of the commodity, the consumer can purchase any combination lying on the budget line. Let us explain how we can obtain the budget line of the consumer. ...