Budget line

In simple terms ,we can say, budget line is a line representing the budget of the consumer.

The budget line is the set of bundles that cost exactly m (income):

p1x1+p2x2=m

P1 - price of good 1

P2 - price of good 2

X1 and x2 are quantities of good 1 and good 2 respectively.

The above equation is the equation of the budget line.only those bundles of goods which makes expenditure exactly equal to income satisfies this equation.ina other words these are the bundles of goods that just exhaust the consumer’s income.

way to draw a budget line given prices (p1,p2)and income m.

Just think how much of good2 the consumer could buyif he spent all of money on good2.???

The answer is m/p2.

Then think about how much of good1 the consumer could buy if he spent all money on good1. The answer is m/p1.

So we get horizontal and vertical intercepts measure how much the consumer could get if he spent all  money on goods1 and 2,respectively.

to depict the budget line just plot these two points on the appropriate axes of the graph and connect them with a straight line.

Here we have our budget line.

Next we will discuss slope of budget line and its implications.