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Budget Constraint definitions

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  • Budget Constraint
    A graphical representation showing the combinations of goods a consumer can afford given income and prices.
  • Income
    The fixed amount of money available for spending on goods after other expenses are paid.
  • Disposable Income
    Funds left for purchasing goods after all other obligations and expenses are settled.
  • Price
    The monetary value assigned to a unit of a good, determining how much can be purchased with available funds.
  • Maximum Quantity
    The highest number of units of a good that can be bought if all income is spent on that good.
  • Budget Line
    A straight line on a graph connecting points representing maximum affordable quantities of two goods.
  • Affordable Region
    The area on a graph where all combinations of goods can be purchased within the consumer's budget.
  • Unaffordable Region
    The area on a graph representing combinations of goods that exceed the consumer's available income.
  • Axes
    The horizontal and vertical lines on a graph used to display quantities of two different goods.
  • Origin
    The point on a graph where both goods have zero quantity, serving as a reference for shifts.
  • Slope
    A measure of how the budget line changes, reflecting the rate at which one good can be traded for another.
  • Shift
    A movement of the budget line outward or inward, indicating changes in income or prices.
  • Combination
    A specific mix of quantities of two goods that a consumer may choose within their budget.
  • Parallel Lines
    Budget lines that maintain the same slope, indicating income changes without price changes.
  • Rotation
    A change in the slope of the budget line caused by a price change in one good, holding the other constant.