Note that the budget constraint line will show all the combinations of goods you can buy given that you spend all the budget you allocate for these particular goods.It is easier to think about it in two goods scenario. Let's contrast the two terms below so that it becomes clearer!The budget constraint represents all the possible combinations of two or more goods that a consumer can purchase, given current prices and their budget. There is a difference between budget set and budget constraint. Difference between Budget Set and Budget Constraint The effects of the budget constraint are evident in the fact that consumers can't just buy everything they want and are induced into making choices, according to their preferences, between the alternatives. Ultimately, limited incomes are the primary cause of budget constraints. Price Elasticity Of Supply in the Short and Long RunĪ budget constraint is a constraint imposed on consumer choice by their limited budget.Īll consumers have a limit on how much they earn and, therefore, the limited budgets that they allocate to different goods.Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Supply.Determinants of Price Elasticity of Demand.

Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Perfect Competition vs Monopolistic Competition.Monopolistic Competition in the Short Run.Monopolistic Competition in the Long Run.Behavioural Economics and Public Policy.

Government budget constraint