The Budget Line

A budget line shows the combinations of two products that a consumer can afford to buy with a given income – using all of their available budget.

The gradient of the budget line reflects the relative prices of the two products i.e. the gradient of a budget line reveals the opportunity cost

The budget line will shift when there is:

• A change in the prices of one or both products with nominal income (budget) remaining the same.
• A change in the level of nominal income with the relative prices of the two products remaining the same.