The main difference between the budget line and the budget set is, budget set refers to the set of combinations of two goods at market price as per the income of the consumer whereas the budget line represents the set of two goods as a graphical representation. This graphical representation shows by a line joining the x-axis and y-axis. And the line joining shows the income of consumer which he/she can spend on purchasing of goods. To differentiate budget line and budget set in detail, at first we would have to understand the budget line and budget set in detail.
What is the budget set?
The budget set is the combination of two goods which has on market price and the consumer spent his income on purchasing of these goods. But there have assumptions in it, that consumer can spend his income as he wants to be spent. This means if his income is₹ 30 and he wants to spend ₹ 28 or ₹ 29 then he can spend. There is no restriction in it that it is necessary to spend his whole income on the set of these two goods. Here the price of goods is given. And this budget set is represented in the form of a table in which a combination of two goods has indicated. The consumer can only buy bundles of goods in a form that:-
(P1,A1), ( P2,A2) < or = M
Here, P1 = Product one
P2= Product two
A1= Quantity one
A2= Quantity two
Let’s take one example to understand it better. A man has an income of ₹ 20 and the cost of the product on and two is ₹ 5. Then,
M= 20, P1 and P2= ₹ 5
Budget set= (0,0) (0,1) (0,2) (0,3) (0,4) (1,0) (1,1) (1,2) (1,3) (1,4) (2,0) (2,1) (2,2) (3,0) (3,1) (4,0)
These are the required budget that is possible as per the given income of the consumer in the example rather than that there is no other budget set is possible. Because if we make any other budget set rather than that then expenditure will increase more than the income of the consumer.
So from the above discussion, if we summarise budget set in simple words then it is a combination of two goods on market price which consumer spent his income on that combination of goods.
What is the budget line?
A budget line is a graphical representation of all possible combinations of two goods which can be represented on the given income of combination at the market price of goods such that each of these combinations should be equal to the income of the consumer.
The budget line is represented by a straight line that touches both the end of the x-axis and y-axis. At the time of representing the budget line, the whole income has been spent. When we represent the budget line on the graph then we make sets of two goods on which the whole income has been spent. While representing the budget line there is a term introduced that is the slope of the budget line.
The slope of the budget line can be defined as the ratio of two goods which has constant all the time while making the sets of budget line to represent it graphically. There have some of the properties of the budget line which is as follows.
Properties of budget line:-
· Downward slope
It means whenever representing the budget line as graphically then it makes a downward slope.
· Straight line
While representing the budget line as it makes a straight line that touches the x-axis and y-axis. As it touches the x-axis and y-axis it makes a straight line.
Sometimes there has a case came in front in which either the price of goods increase and decrease or income of the consumer increase and decrease then at that time there comes a problem to represent the budget line. Then at that time, there is a special case use to represent the budget line. And that special case is named as shifting of the budget line.
Shifting of budget line
Shifting of budget line occurs in two cases:-
- When income increase or decrease
- When the price of goods increase or decrease
1. When income increase or decrease
In case of income of the consumer increases then the budget line shifts to the right. Because the income of the consumer increases then the consumer has the functionality to purchase more goods from his increased income. And the result is budget line shifts to right due to an increase in no of purchased products. In case if the income of the consumer decreases then the budget line shifts to left.
Because the income of the consumer decreases then he will purchase fewer goods as compared to before he purchased goods. Because of the decreased income, the budget line shifts toilet. This means in the case of income it can be divided into two parts as if the income increases and if the income decreases. So in case of income shifting of the budget line can be both on the right or left side. It depends either the income is increasing or decreasing.
2. When the price of goods increase or decrease
In case if the price of the goods increases then the budget line shifts to left. Because the price of the goods increases then the consumer has able to purchase fewer goods because of the increased price of goods. And the result is budget line shifts to left due to an increase in the price of goods so the no of purchased goods decreases. In case if the price of the goods decreases then the budget line shifts to right.
Because the price of the goods decrease then he will purchase more goods as compared to before he purchased goods. Because of the decreased price of goods the budget line shifts to right. This means in the case of the price of goods it can be also divided into two parts as if the price of the goods decreases and if the price of goods decreases. So in the case of the price of goods shifting of the budget line can be both as the right or left side. It depends either the price of goods is increasing or decreasing.
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So shifting of budget line done if in case price of goods increase or decrease and income of the consumer increases or decreases. Let’s take one example to understand the shifting of the budget line. A person has an income of ₹ 30 and the price of two goods ‘A’ and ‘B’ are ₹ 5 of each. If he buys 2 A and 4 B goods. If the income of a person increases from ₹ 30 to ₹ 50 then he will be able to purchase more goods and then the budget line shifts to right and if his income will decrease from ₹ 30 to ₹ 20 then the budget line shifts to left. In case if the price of goods increases from ₹ 5 to ₹ 10 then he won’t able to buy as many products as he bought before. So no of products he can buy will decrease so the budget line shifts to left and if the price of goods decreases from ₹ 5 to ₹ 2 then can buy more goods as compared to earlier. So the budget line shifts to the right.
Comparison
- A budget set is a set of two goods at market price on which the consumer spent their income while the budget line is a graphical representation of two goods which showed by joining the points of the x-axis and y-axis.
- In the case of budget line whole income spent while in case of budget set it is not important to spent whole income of the consumer.
- If the price of goods increase or decrease and the income of consumer increase or decrease then in that case shifting of budget line occurs while there is no such case in the budget set.
- The budget line has a downward slope and straight-line while the budget set has to represent as a set of tables.
So these are the main differences between the budget line and budget set. Which differs both among each other in various ways.