The Budget Line - Economics Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

now let's see what is a budget line a
budget line or a prize line shows all
combinations of two goods which the
consumer can buy spending his income on
the two goods at a given price a budget
line is nothing but a line which sets a
budget for you it tells you that you
cannot exceed this budget how will you
spend your budget by spending it on two
goods goods X and Good Wife so when you
are spending on these two Goods you
spend so that your satisfaction level
from the two goods is maximum so to
maximize your satisfaction level what
you will do is you spend more and more
on them you will consume more and more
of those Goods and when you consume more
and more you spend to spend more and
more but what happens is you have a
limitation you have a limited income you
have a limited budget so this budget
line represents that limitation it
represents the maximum level of income
that you can spend on the combination of
two goods so on this budget line you can
take any combination of the two goods
any combination but it is important to
be on the budget line or within the
budget line like the point K here you
cannot exceed or go beyond the budget
line like the point H here because you
do not have that much income to spend it
is beyond your
so you cannot consume a combination of
Goods x and y which is higher than the
budget length which is above the budget
line or which is beyond the budget line
so the consumer should always try to be
on the budget line because being on the
budget line will maximize his
satisfaction level rather than being
inside the budget line now let's see
what happens to the budget line when the
income increases now when the income
increases the budget line tends to shift
outwards this is our original budget
line this represents this represents the
income that we get we can spend only
that much income that we earn so budget
line is a limitation of income but what
will happen if the income increases
can't you spend more yes you can spend
more because your income is more not so
what happens the budget line tends to
shift outward or it tends to shift
rightward and as a result you get a new
budget line which is higher than the
original budget line because with this
budget line you can consume or you can
spend on more units of the goods x and y
what do you think will be the case if
the price of X increases now please bear
in mind that your income is not
increasing what is increasing is the
price of good
X this is the original budget line which
is in the red ink now what is happening
is the price of X is increasing now when
the price of a product increases will
you be able to purchase the same
quantity of that good no you cannot
purchase the same quantity of that word
in the same budget obviously the amount
of the good eggs obviously the amount of
good-x that is purchase reduces or
decreases and what happens is that the
budget line tends to slope in words you
get a new budget line which is sloping
inwards however it is starting from the
same point on the y axis because the
price of Y has remained the same so you
can still buy the same quantity of good
white but the price of X has increased
so now you have to reduce your
consumption of X and this will give you
a new budget line which is shown in the
green ink and this new budget line is
sloping inwards it starts from the same
point on the y axis and it goes on
sloping inwards till it reaches the x
axis