Explain the distinction between budget set and budget line. When can a budget line shift?
Answers
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.
A change in the price of a good and the budget line. A change in the price of a good and the budget line. If income is held constant, and the price of one of the goods changes then the slope of the curve will change. If the price of one of the commodity increases, the budget line will move inwards and vice versa.
OR
Effect of a Change in the Income of Consumer: If there is any change in the income, assuming no change in prices of apples and bananas, then the budget line will shift. When income increases, the consumer will be able to buy more bundles of goods, which were previously not possible.