Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

1. BUDGET LINE
By Manas Dhibar

2. BUDGET LINE
Budget line is a graphical representation of
all possible combinations of two goods which
can be purchased with given income and
prices , such that the cost of each of these
combinations is equal to the money income of
the consumer. It is also known as price line.

3. Schedule Of Budget Line
Combination Of
Apple and Bananas
Apple ( A )
( $ 4 Each )
Bananas ( B )
( $ 2 Each )
Money Spent =
Income ( $ )
E 5 0 (5×4)+(0×2)=20
F 4 2 (4×4)+(2×2)=20
G 3 4 (3×4)+(4×2)=20
H 2 6 (2×4)+(6×2)=20
I 1 8 (1×4)+(8×2)=20
J 0 10 (0×2)+(10×2)=20

4. Algebraic Expression of
Budget Line
M = ( Pa × Qa ) +( Pb + Qb )
Where,
M = Money income
Qa = Quantity of Apples
(A)
Qb = Quantity of Banana
(B)
Pa = Price of each Apple
Pb = Price of each BananaApples ( A )
B J
I
H
G
F
E
X
Y
A
C Unattaina
ble
combinati
on
D
Income is
under spent
Banana
s ( B)
0 1 2 3 5 6
4
2
6
8
10

5. Properties Of Budget Line
Budget Line Is Downward Sloping:- Budget line
has a negative slope I.e. it slopes downwards as
more of one good can be bought by decreasing
some units of other good
 Budget Line Is Straight Line :- The slope of
budget line is represented by the price ratio. As
price ratio is constant throughout , the budget line
is a straight line.

6. SHIFT IN BUDGET LINE
 Effect of a change in the income of the consumer
: - Upward Shift :- Budget line
shifts to the right from AB to
A¹B¹ due to increase in
income.
Downward Shift :- Budget
line shifts to the left from AB
to A²B² due to decrease in
income .
X
Y
B¹
B
AA²0
BANANA
(B )
APPLE (A)
A¹
B²

7. Effect of change in the relative prices ( Apples and
Banana ) :-
1) Change in the prices of commodity on X- axis( Apples ) :-
• Budget line shifts
from AB to A¹B due
to decrease in price of
Apples.
• Budget line shifts
from AB to A²B due
to increase in price of
Apples.
Y
X
B
AA² A¹
0
BANANA
(B )
APPLE (A )

8. 2) Change in the price of commodity on Y- axis (
Bananas ):-
• Budget line shifts from
AB to AB¹ due to
decrease in price of
Bananas .
• Budget line shifts from
AB to AB ² due to
increase in price of
Bananas .
Y
X
B
B²
0 A
BANANA (
B )
APPLE ( A )
B¹

9. Thank you