The budget line is an important component when analysing consumer behaviour. The budget line illustrates all the possible combinations of two goods that can be purchased at given prices and for a given consumer budget.

What are the main determinants of budget line?

The determinants of budget line are money income of the consumer, price of good 1 and price of good 2.

What is budget line in simple words?

Budget line definition The budget line is a graphical delineation of all possible combinations of the two commodities that can be bought with provided income and cost so that the price of each of these combinations is equivalent to the monetary earnings of the customer.

Why budget line is a straight line?

A straight budget line depicts the constant slope of the budget line. The slope of the budget line given by the ratio of the price of the two goods (- P1/ P2). Constant slope and thereby, straight line is in accordance with the assumption that the prices of the two goods are given.

What are the features of a budget line?

Features of Budget Line 1 Negative Slope – If the line is downward is shows a reverse correlation between the two products 2 Straight Line – It indicates a continuous market rate of exchange in individual combination 3 Real Income Line – It denotes the income and the spending size of a customer

What are the characteristics of a good budget?

Following are the characteristics of a good budget: – It is expressed in quantitative or monetary terms. – It is prepared for a fixed period of time It is prepared before the period in which it commences. – Practical to implement. – It spells out the objects and the policies to be pursued in order to achieve the objective of the organisation.

How is market price similar to budget line?

Market price: The cost of each commodity is known to the customer. Expense is similar to income: It is assumed that the customer spends and consumes the whole income. A budget line includes a consumer’s earnings and the rate of a commodity. These are the two important factors that shift the budget line.

What does the slope of a budget line mean?

In other words, a budget line slope can be described as a straight line that bends downwards and includes all the potential combinations of two commodities which a customer can purchase at market value by assigning his/her entire salary.