Difference between Budget Line and Budget Set

What is Budget Line?

A graphical representation of all possible combinations of two goods which a consumer can purchase with the given prices and income in a way that the cost of each of these combinations is equal to the consumer’s money income is known as a budget line. a budget line is also known as Price Line. For example, a consumer’s income is ₹10 and he wants to spend the money on two commodities, say X and Y and both of these goods are priced at ₹5 each. Now the consumer has three options for spending his income. The first option is to buy two units of commodity X. Second option is to buy two units of commodity Y. or the third option is to buy one unit of commodity X and one unit of commodity Y. This means that the possible bundles, in this case, can be (2, 0); (0, 2); and (1, 1). Now, when all of these three bundles are represented on a graph, a downward-sloping straight line is formed which is known as a budget line.

What is Budget Set?

The set of all possible combinations of the two commodities a consumer can afford to buy with his given income and price in the market is known as a budget set. In the above example, besides the three options; viz., (2, 0); (0, 2); and (1, 1), there are some other options which are available for the customer within his total income of ₹10, even if he does not spend his entire income. A budget set in this case will include all the bundles which have a total income of ₹10. The possible Consumer’s Bundles are (0, 0); (0, 1); (0, 2); (1, 0); (2, 0); and (1, 1). Hence, a consumer’s bundle is a quantitative combination of two goods which a consumer can purchase from his given income.

Difference between Budget Line and Budget Set