Budget Line
The
budget line represents the amount of resources available to the household to
spend on the items the indifference curve. The budget line in this chart
is the straight ab line.
Note that, at point "a" we could buy lots of grain
and few cloths or at point "b" we could have more cloth and less
grain. However, we're not indifferent to these combinations: we don't like
'em.
There is only one place we like on the graph: point
"c." Thus, the model predicts that given an amount of funding
represented by the budget line, we will always choose the purchases represented
by point "c."
We assume that we will always prefer more of what we like to
less so, of course, what we'd really like is to move the whole line to the
right. But if we were able to do so, we'd want to consume at a new point c
rather than at places where the budget line crosses the indifference curve.
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