Budget Line

A budget line is a graphical representation of the combination of two goods that can be bought by a consumer with a limited income. It shows the various combinations of two goods that a consumer can buy with a given income and at prevailing market prices. The budget line is also known as the price line, income line, or consumption line. The slope of the budget line represents the relative price of two goods. The budget line equation is:



Where:

- Px is the price of good X
- Py is the price of good Y
- X is the quantity of good X consumed
- Y is the quantity of good Y consumed
- M is the total income available to the consumer

Budget Set

A budget set is the set of all possible combinations of goods that a consumer can buy with a given income and at prevailing market prices. It is the set of all feasible consumption bundles that a consumer can afford. The budget set takes into account the prices of goods, the consumer's income, and the quantity of goods that the consumer wants to buy. The budget set is represented by a set of points on a graph.

Difference between Budget Line and Budget Set

- The budget line is a graphical representation of the combination of two goods that can be bought by a consumer with a limited income, whereas the budget set is the set of all possible combinations of goods that a consumer can buy with a given income and at prevailing market prices.
- The budget line shows the various combinations of two goods that a consumer can buy with a given income and at prevailing market prices, whereas the budget set takes into account the prices of goods, the consumer's income, and the quantity of goods that the consumer wants to buy.
- The budget line equation is PxX + PyY = M, whereas the budget set is represented by a set of points on a graph.
- The slope of the budget line represents the relative price of two goods, whereas the budget set does not have a slope as it is a set of points on a graph.

In conclusion, the budget line and budget set are important concepts in microeconomics that help to determine the various combinations of goods that a consumer can buy with a given income and at prevailing market prices. While the budget line is a graphical representation of the combination of two goods that can be bought by a consumer with a limited income, the budget set is the set of all possible combinations of goods that a consumer can buy with a given income and at prevailing market prices.

Budget set refers to the set of possible combination of the two goods the consumer consume which he can afford from his income and given price, whereas budget line is the graphical presentation of the whole collection of the combination of the two goods which costs the consumer exactly his income...