Customer's budget: Budget set and Budget line

Consumer’s real purchasing power with which he can buy a combination of two goods, given their prices is known as the Consumer’s Budget. A consumer has limited income therefore the consumer’s budget shows the number of goods and services he can afford.

Let’s take an example, suppose, the income of a consumer is fixed and with that income, he can afford only two things. The prices for both the things in the market are fixed, therefore the consumer will try to choose the best combination of the goods that he wants to buy. He would look for the things that would yield him utility more than the price he has paid; this would give him maximum satisfaction. 

The consumer budget includes two things: a budget set and a budget line.

Budget Set

The attainable combination of a set of two goods, when the consumer has a fixed income, given the prices of products. Therefore, the two utmost factors that affect the choice of the consumer while purchasing a quantity are the consumer’s income and the price of the quantity. The total expenditure that is incurred while purchasing a good or service is the price times quantity for each. Therefore, if the consumer is buying two goods, the expenditure spent on them must be less than or equal to the income of the consumer. This is known as the budget constraint that a customer faces.

Let us assume that a customer has a budget of Rs.60 to be spent on Good-1 and Good-2. Also, assume the price of Good-1 is Rs. 2 per unit and price of Good-2 is Rs.1 per unit. Accordingly, this can be the following budget set of the consumer. This set shows consumption possibilities for the consumer, given his income and price of Good-1 and Good-2.

Table for the Budget Set of the Consumer:

Unit of Good-1	Unit of Good-2
0	60
10	40
20	20
30	0

Budget line in respect of above table.

From the this figure, it is concluded that the price of Good-1 is Rs. 2 per unit, price of Good-2 is Rs. 1 per unit, and the consumer has Rs.60 to spend. Accordingly, maximum 30 units of Good-1 are purchased when the entire budget is spent on Good-1 and maximum 60 units of Good-2 can be purchased when the entire budget is spent on Good-2.