The budget line represents all combinations of two goods that a consumer can purchase given their income and the prices of the goods. It shows the trade-off between goods as the consumer can only purchase more of one good by spending less on the other. The budget line is determined by the consumer's income and the prices of the goods, forming a straight line with a negative slope from left to right. It depicts the most a consumer can spend on each good without going over their budget.

1. BUDGET LINE
❖ Budget Line is a line which represents all possible combinations of two goods that a consumer can purchase
with his given income and the given price of two goods.
❖ According to Hibbdon “ The Budget line shows all the different combinations of two goods that a consumer can
purchase given his income and the prices of the two commodities.”
❖ Suppose a consumer has an income of ₹ 10 to spend on cups of coffee and bread. Price of the cup of coffee is
₹ 2 and that of each bread is ₹ 1 each. With his given income and given prices of cups of coffee and
bread,The different combinations that the consumer can purchase of these two goods are shown in the table.
INCOME ₹ COFFEE (CUPS) BREAD(PIECES)
10 0 10
10 1 8
10 2 6
10 3 4
10 4 2
10 5 0

2. ❖ It becomes clear from this schedule that if the consumer spends his total income of ₹ 10 on cups of coffee
alone , he can purchase 5 cups and no piece of bread . On the other hand if he purchases bread alone he
can get 10 pieces by spending his total income. These are the extreme points of his choice.
❖ Generally the consumer will purchase combinations of coffee and bread. The above table depicts the
obtainable combinations of coffee and bread with the given income of ₹ 10 and at a given price. All these
combinations of two goods are shown graphically by a line and it is called budget line.
0
2
4
6
8
10
12
0 1 2 3 4 5 6
BREAD
COFFEE
BUDGET LINE

3. ❖ The price line shows a set of all those combinations which a consumer can buy at given prices and
income.
❖ Budget Line is also known as Price income Line , Price Line ,Consumption Possibility Line , Line Of
Attainable Combinations, Outlay Line , Expenditure Line Or Budget Constraint Line.
❖ The price line is a straight line sloping left to right downwards.
❖ It has only one slope throughout which shows the constant price ratio for the two goods . it has a
negative slope which shows that the consumer can have more of one commodity only by sacrificing
some of the other.
❖ Slope of price line refers to the price of two goods that is:
PX= PRICE OF X ( COFFEE), PY= PRICE OF Y(BREAD)
Slope of Price Curve =
Px
Py

4. CHARACTERISRICS OF BUDGET LINE
❖ Price line is a straight line.
❖ It has negative slope downwards from left to right.
❖ The shape of the price line depends upon the income of the consumer and the prices of two goods.
❖ The position of the price line is determined by the size of income of the consumer.
❖ The slope of the budget line is equal to the ratio of prices of two goods.
Pervaiz Ahmad Mir
Assistant Professor
GDC Kulgam