Properties and Requirement of Budget Line

Properties of the Budget Line

Some salient features of a budget line have been listed below:

• Straight Line: Budget line comes with a straight line which implies the sustained rate of market exchange for each set of bundles.
• Real Income Line: This line is representative of the total income and expenditure power of a consumer.
• Negative or Downward Slope: Graphs of budget lines have a downward slope which points to an inverse proportionality between purchases of two given commodities.
• Tangent to Indifference Curve: Budget line acts as a tangent to the indifference curve at a point which can be referred to as consumer’s equilibrium.

Requirements of a Budget Line

The theory of the budget line is mostly based on assumptions, like a majority of economic theories, in order to bring out simpler and clearer analytic results. Some of them are mentioned below:

• Revenue of a consumer is spent on the purchase of two commodities only.
• Total money earning of a consumer is limited and known.
• The consumer knows the market prices of both products.
• The entire income of a consumer is equal to his/her total expenditure.