The title contains one of the basic terms of the theory of consumer behavior. What is a budget line? This is a graph that helps to analyze the possibilities and desires of the consumer. Let's talk in more detail about the concept, properties of an object, as well as related terms and phenomena.
The budget line (BL) is a straight line, whose dots show the sets of goods, for whose acquisition the allocated budget is spent in full. It intersects the Y and X coordinate axes at points that indicate the largest possible amount of products that can be purchased for a specific income at current prices.
Thus, BL demonstrates various combinations of 2 sets of any goods that are bought at a certain profit and a fixed cost.
Let's imagine the properties of budget lines.
1. They have only a negative slope. Since the sets of goods on the BC have the same prices, an increase in the number of purchases of one leads to a decrease in purchases of the other. Recall that a curve showing the feedback of two variables always has a negative slope.
2. The location of the BL depends on the value of the consumer's profit. If his income increases, and prices remain the same, then the budget line will move to the right, parallel to the previous straight line. If the profit decreases at constant prices, then the BL moves to the left, but still parallel to the old line.
Thus, a change in consumer income will not lead to a change in the angle of inclination of the BL. Only the points of its intersection with the coordinate axes X and Y change.
3. The slope coefficient of BL is equal to the ratio of the value of economic goods with the opposite sign. Let us explain this property. The BL slope is the ratio of the horizontal product price to the vertical product price. Hence the steepness of this slope: P x / P y (price of product X, price of product Y).
The minus sign in this case indicates a negative slope of the BL (after all, prices for products X and Y will always be only positive values). Hence, you need to refrain from buying any item from the X complex in order to purchase something from the Y set.
4. Changes in the prices of economic goods affect the change in the slope of the BL. Here we see the following. If the cost of one product changes, then both the angle of inclination of the budget line and the location of one of the points of intersection of the BL with the coordinate axis change.
But if the prices for both goods become different, then this becomes equivalent to a change in the size of the total profit of the consumer. That is, the BL in this case will move to the right or left.
The budget line is intertwined with broader concepts. The first is the budget constraint. These are all the bundles of goods that a consumer can buy with a certain budget and current prices. The law of the budgetary constraint: total income equals total expenditure. With any change in the amount of profit, the budget line shifts.
Budget constraint can be described by the equation: P x Q x + P y Q y ≤ M. Let's decipher:
Hence, it is clear how the BL intersects the X and Y coordinate axes at two points:
These points on the budget line show the maximum amount of products X and Y that can be purchased with the consumer's income at the current prices.
The next important related concept is budget space. This is the name of the entire selection zone available to the consumer. It is represented by a shaded triangle on the graphs. On the one hand, it is limited by the consumer's budget line, on the other, by the X and Y coordinate axes.
To select such a space in the figure, it is enough to construct a direct budget constraint using the formula: P x Q x + P y Q y = M.
Indifference curve - these are various combinations of a pair of economic goods that are equally necessary for a person. With the help of such graphs, you can show the consumer's equilibrium - the point of maximization of total utility, satisfaction from spending your fixed profit.
Indifference curves are tools widely used by the neoclassical school of economics. In particular, they are applicable in studies of microeconomic situations related to the problem of choice.
The properties of indifference curves (KB) are as follows:
The KB complex forms a map of the set of indifference curves. It is used to describe consumer preferences for all types of economic goods.
How do these concepts relate to each other? The indifference curve shows what a person would like to buy. And BL - what he can get. Together, they answer the question, "How can you provide the greatest purchase satisfaction with limited profits?"
Thus, KB and BL are used to graphically represent a situation where a person maximizes the utility he acquires by purchasing two goods with a limited budget. From here it is possible to isolate the requirements of the optimal set of consumer goods. There are only two of them:
Thus, the budget line helps to imagine in what proportions two different sets of economic goods can be purchased for a fixed budget. This graph is often analyzed in conjunction with the indifference curve and other related phenomena.
Indifference curves and budget lines are used to further explain consumer equilibrium. In this case, the graphical analysis is carried out in three stages.
On first stage investigated consumer preferences, which he takes into account when choosing certain goods for purchase. This does not take into account the consumer's monetary income and the prices of goods, which limit the possibilities of his choice. In this case, indifference curves are used for the analysis.
On second stage analyzed budget constraints, that is, the consumer's monetary income, which he can use to purchase goods, and their prices. In this case, budget lines are used.
On third stages combine the analysis of consumer preferences and budget constraints, indifference curves and budget lines, and determine the rational consumer choice providing the consumer with maximum overall utility.
Indifference curves are used to graphically depict consumer preferences. Indifference curve is a collection of different combinations of goods that provide the consumer with equal overall utility, or the same level of satisfaction. In other words, the consumer doesn't care which of these combinations he gets.
Based on the conditional data, we construct a consumer's indifference curve, assuming that he purchases only two types of goods - x and y... At this stage, we are not interested in the consumer's monetary income and the prices of goods. x and y, but only his preferences and tastes. Let's say that for a given consumer there are several combinations of goods x and y that equally satisfy his needs, that is, have the same overall utility. We give these combinations in table. 2.2, and then we will show graphically in the form of an indifference curve in Fig.
The indifference curve is concave. Each dot on it shows combinations of two goods that have the same overall utility TU. If we move down the indifference curve down and to the right, that is, increasing the consumption of the goods x and reducing the consumption of goods y, then the slope of the indifference curve will decrease. This curve shape reflects substitution law... The more scarce a commodity, the higher the relative cost of replacing it with another, more common commodity, since the marginal utility of a commodity that has become scarce increases in comparison with the marginal utility of another commodity that is available in large quantities.
Combinations of indifference in choosing two products x and y providing the consumer with the same overall utility
The slope of the indifference curve reflects the marginal rate of substitution (MRS). Marginal rate of substitution (coefficient of substitution) shows in what ratio the consumer agrees to replace one product with another in order to obtain the same general utility, or the same satisfaction of needs. Marginal rate of substitution of goods y commodity x shows from what quantity of goods y you can refuse to consume an additional unit of goods x to keep the same overall usefulness:
The “-” sign is introduced to obtain a positive value of the marginal rate of substitution, since changes y negative.
The marginal rate of substitution is equal to the ratio of the marginal utilities of the goods being replaced:
Combinations of goods represented on the AE indifference curve x and y correspond to a constant value of the total utility TU. However, it is possible to compose a number of new combinations that would correspond to a lower level of satisfaction of the needs of a given consumer and would provide him with a lower level of overall utility, or correspond to a higher degree of satisfaction of needs and a greater value of total utility. The set of different indifference curves corresponding to different levels of satisfaction of the needs of a given consumer, or the general utility of the goods consumed, is called indifference card.
At the second stage of the analysis, budget constraints are investigated that determine the choice of purchases by the consumer of various goods in one or another quantity. They depend on the consumer budget, that is, the consumer's money income, and the prices of purchased goods. The consumption possibilities are determined by the budget line. Budget line (line of consumption possibilities) shows combinations of the maximum number of goods that a consumer can purchase with his money income at prevailing prices. To determine different combinations of the maximum quantity of two products x and y that a consumer can buy with disposable cash income, the budget line equation is used, which looks like this:
P x Q x+ P y Q y= I,
where P x, P y- prices of goods x and y;
Q x, Q y- number of goods x and y;
I is the consumer's money income.
Let's build a budget line using conditional data. Suppose that the consumer has a daily cash income of 40 rubles, which he completely spends on the purchase of goods x and y... Item unit x costs 5 rubles, and the goods y- 10 p. Then various combinations of two goods that he can purchase with his money income can be presented in table. Based on the data in the table, we will build a budget line.
Combinations of goods x and y corresponding to the budget line of a buyer with an income of 40 rubles, which he is able to acquire
The slope of the budget line is 0.5, which is the ratio of the price of the item x to the price of the goods y... This means that at given prices and constant monetary income, the consumer, moving down the budget line, to purchase an additional unit of goods x must discard 0.5 unit of goods y.
We transform the equation of the budget line P x Q x+ P y Q y= I:
P y Q y= I - P x Q x
Ratio P x/ P y are called transformation ratio, or the conversion factor of goods. He shows the possibility of interchangeability of two goods with the same monetary income. The transformation ratio characterizes the steepness, or slope, of the budget line.
At the third stage, a joint analysis of the indifference curves and the budget line is carried out, and the equilibrium position of the consumer is determined at which he receives the maximum overall utility.
The consumer cannot choose a combination of two goods located to the right of the budget line, since he does not have the corresponding monetary income. The combinations that are to the left of the budget line can be purchased by the buyer, but at the same time he does not use all the cash income. Therefore, combinations of the maximum number of products x and y that can be purchased by the consumer are located on the BF budget line. However, the optimal combination will be the one that provides the maximum overall utility. It is located at point D, where the budget line touches the highest of the TU indifference curves.
Consequently, the consumer is graphically in equilibrium at the point where the slope of the budget line is equal to the slope of the indifference curve. The latter is reflected by the marginal rate of substitution, or the coefficient of substitution:
The slope of the budget line shows the transformation ratio:
Thus, we have come to the previously considered condition of consumer equilibrium, in which the consumer receives the maximum satisfaction of needs, or the maximum overall utility, from the consumption of goods x and y.
Previously, we proceeded from fixed prices for goods. x and y and constant cash income. In the future, we will analyze,.
A B. line is a geometric place of points characterizing all sets of two goods that a consumer can purchase, having completely spent his income at given prices.
Budget constraints, consumer or personal, the budget is the consumer's monetary income, within which the demand for goods and services that meet his needs can be presented.
Suppose that a consumer with a fixed income spends 100 rubles a day. on the purchase of only two goods - A and B. If he spent all 100 rubles. for the purchase of goods A, then I would have purchased it in the amount of 6 units. If these 100 rubles. were spent on the purchase of product B, then the consumer would have 8 units of this product. Within these values, he can spend 100 rubles. for the purchase of goods A and B in any combination. The MN line shows the consumer's constraints and is called the consumer's capability line, or budget line.
The budget line (the line of the budgetary limit) is a straight line, the points of which show the sets of goods, upon the purchase of which the consumer's income is spent in full. Mathematically, the budget constraint can be expressed by the equation:
I = Pa * A + Pw * B
where I is the consumer's income; Ra is the price of good A; Рв - the price of good B; A and B are the goods the consumer needs.
It follows from the budget line equation that the budget line has a negative slope. The angle of its slope is determined by the ratio of prices, and the distance from the origin of coordinates is determined by the size of the budget.
If the consumer's budget changes at fixed prices of goods, then a parallel shift of the budget line occurs. The slope of the budget line will not change as it is determined only by the price ratio. With an increase in income and constant prices, there will be a parallel upward shift in the budget line.
If, with a fixed budget and a constant price of good B, the price of good A changes, then the slope of the budget line changes. There is a rotation of the budget line around the point of intersection of the budget line with the vertical axis of coordinates: the angle of inclination decreases when the price of goods becomes cheaper and increases when it rises. This is due to a change in the maximum amount of consumption of goods A by a Consumer who behaves in such a way as to maximize utility with a limited income, called a rational consumer, indifference curves have a negative slope. There is an inverse relationship between the quantities of goods X and Y. With a decrease in the consumption of one good, in order to compensate for losses and maintain the previous level of utility, the consumer must increase the consumption of another good. Any curve that expresses the feedback of variables has a negative slope;
Budget line properties:
Indifference curves reveal consumer preferences, but they do not take into account: prices of goods and consumer income. They do not determine which particular set of goods the consumer considers most beneficial for himself. This information is provided by the budget constraint, showing all the combinations of goods that can be bought by a consumer at a given income and given prices.
Let be I - consumer income, R X- the price of the good X, R Y- the price of the good Y, a X and Y make up, respectively, the required amount of goods. For simplicity, let’s assume that the consumer does not make any savings and spends all his income on the purchase of only two goods. X and Y.
The budget constraint equation will look like: I= P X · X+ P Y · Y... The budget constraint has a fairly simple meaning: the consumer's income is equal to the amount of his expenses on the purchase of goods X and Y... Let's transform the equation of the budget constraint to the following form:.
Budget line (budget cap line) – this is a straight line, the points of which show the sets of goods, upon the purchase of which the consumer's income is spent in full.
T
Rice. 2.7.
Budget constraint
units of this product, similarly 
–
units of goods Y(fig. 2.7). The slope of the budget line is 
the coefficient at X in the budget line equation. The economic meaning of this slope is to measure the alternative cost of goods, in this case, the cost of one unit of goods X in units of goods Y.
For example, a product X- table wine at the price of 20 thousand rubles. for a bottle, and Y- non-alcoholic drink at the price of 5 thousand rubles. per bottle. Then, buying one bottle less wine, the consumer has an additional 20 thousand rubles. to purchase four additional bottles of soft drink, i.e. the alternative cost of one bottle of wine is four bottles of a soft drink.
AND
Rice. 2.8.
Budget shift restrictions on income growth
it follows that the budget line has a negative slope; the angle of its slope is determined by the ratio of prices, and the distance from the origin of coordinates is determined by the size of the budget.
If the consumer's budget changes at fixed prices of goods, then a parallel shift of the budget line occurs. The slope of the budget line will not change as it is determined only by the price ratio. With an increase in income and constant prices, there will be a parallel upward shift of the budget line (Figure 2.8).
E
Rice. 2.9.
Impact on the budget constraint of changes commodity pricesX
Each item in the set has a different price, the consumer's budget is limited, then the consumer's choice becomes limited. The budget line reflects the possible choices for the consumer. Budget lines provide an answer to the question: what can a consumer buy, having a certain monetary income, taking into account the prevailing prices for goods.
Budget line is a set of goods that a consumer is able to purchase at a given income and given prices.
The budget line indicates all combinations of goods in which the total cost is equal to income (Fig. 4.11.). If we plot on the abscissa the maximum number of units of one product that can be bought with available funds, for example, food, and on the ordinate - the same for another product - clothes, then the triangle OAB will contain all the available options for the consumption of goods A and B, and on the segment AB - those of them that have the same total value and assume the full use of the buyer's financial resources. Points located to the right and above AB are inaccessible, because they correspond to an income greater than that which the consumer has. Points located to the left and below AB do not meet the condition that all income must be spent.
The budget line equation has a simple form:
I = Qx * Px + Qy * Py
where Qx and Qy are the quantities of goods of the type x and y; Px and Py are their prices; I - total consumption
We transform equality as an equation for the amount of one of the goods consumed:
We got the equation of the budget line, or, as it is also called, the price line.
The budget line has a negative slope. If our amount of money (budget) has changed, it has become more or less, and the goods are the same, the corresponding budget lines will run parallel to the first straight line, with a smaller amount - closer to the origin, with a larger amount - farther from it, i.e. the distance from the origin determines the size of the budget.
All product kits corresponding to points on the budget line are available to the consumer. Those. the budget line limits from above the set of product sets available to the consumer. Product sets located above and to the right of the budget line are not available to the consumer. Product sets located below the budget line are also available to the consumer, but purchasing them does not allow spending the entire budget.
The location of the budget line depends on income and product prices. However, incomes and prices change frequently. How will the budget line change when income and prices of goods change? Suppose the consumer's income is reduced to I "< I, цены на блага неизменны. Наклон бюджетной линии не изменится, так как он зависит лишь от пропорций цен. В этом случае произойдет параллельный сдвиг бюджетной линии вниз. Она займет положение K"L". При росте дохода и неизменных ценах наблюдается параллельный сдвиг бюджетной линии вверх. Допустим теперь, что доход и цена товара X неизменны, цена же блага Y уменьшилась до P"Y < PY. В данном варианте точка L не изменит своего положения, ибо оно обусловливается неизменными I и Рх. Левый же конец бюджетной линии сдвинется вверх и займет положение К".
If prices remain unchanged and income changes (increase or decrease), the buyer can increase or decrease purchases of goods. With income stability and changes in prices in the market, the situation develops depending on whether the price of one product or all included in the set changes. If the price of one product changes (rises or falls), while the other remains unchanged, then the consumer can reduce or increase purchases of the goods, the price of which has changed. The ratio of prices of goods P X (food) / P Y (clothes) determines the angle of inclination of the budget line. E If, with a fixed budget and a constant price of product X, the price of product Y decreases (increases), then the slope of the budget line decreases (increases), in other words, the budget line will turn clockwise when the price rises and against it when the price goes down relative to any point of its contact with the coordinate axes (Figure 4.12.).
Rice. 4.12. Impact of price changes on the budget line.
So, the properties of the budget line:
1. Points A and B show the maximum possible consumption of goods Y and X, respectively, i.e. the entire budget is spent only on product Y or product X, respectively.
2. The slope of the budget line = - Px / Py; a minus sign indicates a negative slope.
3. When the consumer's income changes, the budget line moves in parallel. To the right - with an increase in income, to the left - with a decrease in income.
4. When the prices of goods change, the angle of inclination of the budget line changes, and the consumer can buy more (less) goods X (Y), i.e. the purchasing power of the consumer can increase (with a decrease in prices) or decrease (with a rise in prices). Income is unchanged, prices increase (decrease) - turn the budget line to position AB 1 (AB 2); there is only one common point (point A), at which the consumer's possibilities of consumption have not changed.
If prices for both goods change proportionally, i.e. increase or decrease by the same number of times (for example, with 10% inflation all prices increase by 1.1 times), then the budget line will also move in parallel: if prices increase proportionally, then the budget line will shift to the left and, conversely, a decrease in prices will move the budget line to the right.
5. If income and prices simultaneously increase proportionally (or simultaneously decrease proportionally), then the position of the budget line will not change. This is the meaning of the indexation of the population's income: an inflationary rise in prices, which leads to a parallel shift of the budget line to the left, is accompanied by a simultaneous proportional (i.e., the same number of times) increase in income (which shifts the budget line parallel to the right), and the budget line, which means that the real welfare of consumers does not change.
Maximizing the need.
Consumers make rational (optimal) choices on the market, that is, they choose goods in such a way as to achieve the maximum satisfaction of their needs with a given limited budget. The optimal mix of consumer goods and services must meet two requirements. First, the choice from the set of sets occurs within the framework of the consumer's income. Second, the optimal set of consumer goods and services should provide the consumer with their most preferred combination.
The simplest rule of maximizing utility is a common sense rule: if you cannot increase utility by changing combinations of goods (consumables), then you have reached the maximum utility and this consumer set is the best. Therefore, the set that maximizes satisfaction of needs should be at the intersection of the indifference curve farthest from the origin with the budget line, since the indifference curve shows what the buyer would like to buy, and the budget line shows what the consumer can buy. This can be graphically depicted as follows:
Rice. 4.13. Schedule to maximize customer satisfaction.
Consumer balance is set at the point (with such a set of goods) when the highest possible level of utility is reached for a given budget constraint. This is point E, which is called consumer optimum.
When a consumer maximizes satisfaction by consuming certain quantities of different goods (in our example, clothing and food), the marginal rate of substitution (or the ratio of the marginal utilities of two goods) is equal to the ratio of the prices of these purchased goods.
Knowing consumer choice under budget constraints, it is possible to determine individual demand. The demand for a particular good depends on the prices of the consumer goods and on the income allocated for consumption. The dependence of demand on the prices of consumer goods, and not on the price of the goods for which demand is presented, is explained by the fact that the consumer is constantly transforming the structure of demand, guided by changes in the prices of all components of the consumer set.
Example task:
Budget line equation: I = y + 2x. Therefore, y = 30 - 2x.
