Price line or Budget line
Price line or Budget line A budget line is drawn on the assumption that the consumer has a given income which sets limits to his maximizing behavior. A rational consumer always wants to get maximum satisfaction, therefore, he tries to reach the highest possible indifference curve. In this activity, our consumer will be governed by the amount of money or income he has to spend on goods and the price of the goods in the market. A budget line shows all the possible combinations of two goods that a consumer can purchase with the given income. Suppose the consumer has Rs. 15 to spend on good X and good Y and the price of good X in the market is Rs 3 per unit and the price of good Y is Rs 1 per unit. With Rs.15, he can buy 5 units of good X [=OF] or15 units of good Y[OA]. By joining points A, B, C, D, E, and F, we get the price line. It is also called the Price-income line, Price opportunity line, or Budget line. This line shows all possible combinations of two goods...