Budget Line:
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Budget line represents various combinations of two goods that can be purchased with the given amount of money.

It is known as Price line or Iso-cost line

It can be drawn by locating the end points of X and Y that can be purchased from the given amount of money.

It plays an important role in determining the combination of goods that the consumer should purchase to minimize his total cost.

Suppose, a consumer has a fund of `270 which he wants to spend on two goods viz., apple (X) and chiku (Y). The price of X is `90/kg and that of Y is `30/kg. Given the prices of X and Y, he can purchase a maximum 3 kg of apple or 9 kg of chiku. To draw Budget line we need two extreme points A and B on X and Y which can be obtained as under:



When these two points M(3,0) and N(0,9) are joined, we get budget line (Fig.5). Similarly, iso-cost line for budget of ` 800 and ` 1200 can be drawn as under. They will be parallel to each other.


Fig. 5: Budget Line or Iso-Cost Line

Characteristics of Budget line:
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It is always a straight ine.
The slop of budget line shows the inverse price ratio of two goods.
Change in input prices will change the slop of the budget line.
When the total outlay or budget is increased, the budget line shifts upwards to the right and it moves farther away from the origin and vice-versa.
budget lines are parallel to one other, since relative price ratio remains constant.