Budget Restriction Concept

The expression Budget Restriction designates a group of goods’ combinations possible to be consumed by a certain consumer considering his available income. In a simplified graphic representation in which in one axis is placed the good and in the other axis is another good, the budget restriction emerges as a straight line which unites the two pints of each axis who correspond to the maximum possible to consume of each one of the goods directing to it the available income. The inclination of that straight line will correspond to the prices ratio between both goods. A change in the price of one of the goods will originate a change in the inclination of the straight line of the budget restriction, while a change in the available rate will originate a horizontal shift of that same line.

 

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.