Budget Set- It refers to all the bundles or set of bundles available to the consumer with given price and given income.
In other words, it is the collection of all the bundles that consumer can purchase with his given income at the prevailing market prices.
Budget constraint- It shows that a consumer can choose any bundle as long as it costs less or equal to income.
| Let | |
| X1 be the amount of good 1. | X2 be the amount of good 2. |
| P1 be the price of good 1. | P2 be the price of good 2 |
| P1X1 = Total money spent on good 1 | P1X2 = Total money spent on good 2 |
| M is total income | |
Thus P1X1 + P2X2 ≤ M will be the equation of budget set.
