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Difference between Budget Line and Budget Set

Difference between Budget line and budget set

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The basic difference between the Budget set and the Budget line is that the Budget set refers to the set of attainable combinations of two goods with a given market price of the goods and income of consumers whereas Budget Line refers to the graphical representation of these combinations which can be purchased with given income. These both are essential components of the consumer budget.

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To know the difference between these two, we must clear the meaning of these terms:

Meaning of Budget Set:-

It refers to attainable combinations of a set of goods, given prices of goods and income of the consumer. The budget set equation can be written as:

P1X1+P2X≤ Y

Here,

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P1 refers to the price of Good-1

Xrefers to the quantity of Good-1

Prefers to the price of Good-2

X2 refers to the quantity of Good-2

Y refers to total expenditure or total budget.

A budget set is also known as a budget constraint as it shows the limit up to which a consumer can buy a set of two goods with a given income.

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Meaning of Budget Line:-

Budget Line is a line showing different possible combinations of Commodity-1 and Commodity -2 which a consumer can buy within his budget and given market prices of commodities. It is also known as price line, consumption possibility line, and line of attainable combinations.

The basic components of this line are:

1)Consumer’s Purchasing power (income)

2)Price or market value of two goods.

Its equation can be written as:

P1X1+P2X= Y

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Here,

P1 refers to the price of Good-1

Xrefers to the quantity of Good-1

Prefers to the price of Good-2

X2 refers to the quantity of Good-2

Y refers to total expenditure or total budget.

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Chart of Difference between Budget Set and Budget Line :

 Basis of Difference Budget Set Budget Line Meaning It comprises sets or bundles of goods and services which a consumer can purchase with his limited income. It comprises of all those bundles of goods and services which costs equal to the income of the consumer. Deals with It deals with all the attainable combinations of two goods, given the prices and income of the consumer. It deals with the limit up to which the consumer can buy a set of two goods with his income. Equation P1X1+P2X2 ≤ Y P1X1+P2X2 = Y Relationship with Income The sets of two goods and their prices always fall under or equal to the total budget of the consumer. Here, the bundles of two goods and their prices are always equal to the budget of the consumer. Inter-Relationship It provides a basis to represent the budget line. It comprises a different combination of two goods in a budget set. Also known as It is also known as the Opportunity set. It is also known as Budget Constraint or Price Line. Graphical Representation The consumption sets that lie under and on the budget line form the budget set. The consumption sets that lie on the budget constraint itself form the budget line.

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Conclusion:

Thus, the Budget set provides all attainable combinations of two goods for all combinations of income and prices of commodities to make a budget line. Both terms are important to find out the consumer equilibrium point through indifference curve analysis.

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