BackBudget Constraint definitions
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1/15BackSkip to main contentBackBudget Constraint
A graphical line showing all affordable combinations of two goods given limited income and their prices. Income
A fixed amount of money available for spending on goods, determining the maximum quantities that can be purchased. Price
The cost per unit of a good, which, when divided into income, determines the maximum quantity of that good. Maximum Quantity
The highest number of units of a good that can be bought if all available funds are spent on it. Budget Line
A straight line on a graph connecting the maximum affordable amounts of two goods, representing the spending limit. Affordable Combination
Any mix of two goods that can be purchased without exceeding the available funds. Unaffordable Combination
Any mix of two goods that requires more money than is available, lying outside the budget line. Opportunity Cost
The value of the next best alternative forgone when choosing one combination of goods over another. Purchasing Power
The ability to buy goods and services, determined by income and prices, and reflected by the position of the budget line. Aggregate Demand
The total quantity of goods and services demanded across all consumers, influenced by income and prices. Consumption
The act of using income to acquire goods, constrained by the budget line and affected by price and income changes. Slope
The rate at which one good must be given up to obtain more of the other, determined by the ratio of their prices. Outward Shift
A movement of the budget line away from the origin, indicating increased income and greater purchasing power. Inward Shift
A movement of the budget line toward the origin, indicating decreased income and reduced purchasing power. Rotation
A pivot of the budget line around one axis when the price of one good changes, altering the maximum affordable amount of that good.
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