Budget constraint

What hits your mind when you hear these two words budget and constraint??

Well, to me budget is something related to income and expenditure,

Constraint is like some limitation so budget constraint is some constraint on budget. Like we have household budget or something like that. So it implies limitation on income and expenditure.

To understand this let's assume that there is a consumer with income M and he only have two goods to buy , so it is obvious that either he will spend all his income to buy these goods or he will buy some combination of these good but the expenditure could not exceed his income.

To put it mathematically,

Let the two goods be good 1 and good2 and x1 and x2 be the quantity of these two goods respectively, that the consumer buys.

Let p1 be price of good 1 and p2 be price of good 2

And we already have income M so

P1x1 is total amount spent on good 1

P2x2 is total spending on good 2

Sum of these two should be less than or equal(refer to video for exact mathematical equation) to income ie M

This is our budget constraint.

The amount or the bundles ie combination of these to goods that could be purchased within this constraint are called budget set of the consumer.