Humanities & Social Sciences

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 combination is equal to the money income of the consumer. Alternately, budget line is locus of different combinations of the two goods which the consumer consumes and which cost exactly his income.
Important points about budget line:
1. Budget line AB slopes downwards as more of one good can be bought by decreasing some units of the other good.
2. Bundles which cost exactly equal to consumers money income (like combinations E to J) lie on the budget line.
3. Bundles which cost less than consumer's money income (like combination D) shows under spending. They lie inside the budget line.
4. Bundles which cost more than consumer's money income (like combination C) are not available to the consumer. They lie outside the budget line.