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24 February, 2016 - 16:12

A budget line is the locus of combinations of two goods an individual can afford to buy with his/her income. The slope of the line is the price ratio of the two goods: Pa/Pb or relative price of each good.

Figure 3.7 Budget line 

A housewife going to the supermarket with a specific amount of money, knows exactly what is the maximum she can spend. The proportions of the different items can change.