 module 15 budget constraint. When we make discussion about the consumer behavior to define the willingness part of the consumer, we use the concept of indifference curve. Indifference curve denotes different combination of two commodities that provide same level of satisfaction to a particular consumer. To report the scarcity part under the behavior of the consumer, we use the concept of the budget constraint. In fact, budget constraint highlights expenditures of a consumer cannot be greater than his income. In real life, a consumer is using a large number of commodities to get satisfaction. For example, if we make discussion about the different categories of the commodities that are being used by a particular consumer, it can be categorized under the subheadings, subheading of fruits, vegetables, meat, grain and many other things that give him certain level of the satisfaction. But to keep things clear or to keep things understandable, we start by making an assumption. Here, a consumer is using only two commodities and those two commodities belongs to the category of fruits. The fruits that are being considered in this example are apples and oranges. In fact, budget constraint gives us all the feasible choices of choices for a consumer that he can afford by using his limited income. The main determinant in the determination of the budget constraint is the prices of the commodities that are being used by a particular consumer and income of the consumer. When we make discussion about the income of the consumer, it is income after deduction of tax. The income that we use, that is used by a particular consumer to purchase different goods and services, it is in fact the disposable income, income that a consumer have after paying the tax. To explain budget constraint, if we use mathematical expression, it indicates the expenditures of the consumer cannot greater than his income. The equation that we are using in this slide indicates total expenditures that a consumer carries out here is on apples and oranges. We are denoting quantity of apples with QA and price of apples with PA. So, if we assume a consumer is using 5 units of oranges and price of apples is equal to 40. So, total expenditure that a consumer is carrying is carried out on the purchase of apples is equal to 200 rupees. Similarly, in this expression we are using QO to denote the quantity of oranges that a consumer is purchasing and if price of oranges is equal to PO, then by multiplying quantity of oranges with price of oranges, we can report the expenditures that a consumer carried out on the purchase of oranges. So, by aggregating the expenditures on these two commodities, we can report the total expenditures on these two commodities. Under budget constraint, total expenditures of the consumer cannot exceed his income. To clarify the concept of the budget constraint, we start by making certain assumptions. In this case, we start by making an assumption if price of each unit of oranges is equal to 20, price of apples of price of apple each unit of apple is equal to rupees 40 and if we assume income that a consumer can allocate on these two commodities is equal to 200. So, expenditures on the purchase of oranges and apples cannot exceed the income of the consumer. If we assume consumer allocates all of his income on the purchase of oranges. So, as the income of the consumer is equal to 200 rupees and price of each unit of oranges is equal to 20, then total quantity of oranges that a consumer can purchase it is equal to 10. But in this case, he will purchase zero unit of apple. So, by aggregating the expenditures on apples and oranges, we can indicate total expenditures on these two commodities is equal to 200. Similarly, if we assume that the consumer purchases all the expenditures on apples, then the maximum quantity of apples that a consumer can purchase is equal to 40, then he can purchase at most 5 unit of apples when he purchases zero unit of oranges. So, we are reporting that particular combination of oranges and apples by using C combination. It might be possible consumer is purchasing a mixture of apples and oranges. If he allocates 50 percent of his income on the purchase of apples and 50 percent on the purchase of oranges, then under the given conditionalities, he can purchase 5 unit of oranges and 2.5 units of apples and the expenditures that a consumer carries out on apples is equal to 100 rupees. When we multiply quantity of apples with price of apples, it will give us 100. 2.5 into 40 is equal to 100. And similarly, if we multiply price of oranges 20 with quantity of oranges, that is equal to 5, then expenditures on oranges is equal to 100 and total expenditure on these two commodities is equal to 200. One thing that we should keep in mind at this stage, if we are considering here those commodities that are completely divisible, we have made another additional assumption that apples are divisible. We can purchase half unit of apple too from the market. So, the thing then that is important at this stage, the expenditures of the consumer is not exceeded from his income. And if we show all these combination of apples and oranges that a consumer purchase, in this figure, we are basically taking apples on horizontal axis and quantity of oranges on vertical axis. And as in the previous slide, we highlighted if consumer allocates all of his income on the purchase of oranges, he can purchase 10 unit of oranges. But in that case, he will purchase 0 units of apples. So, we are denoting that particular combination by combination A in the given diagram. Similarly, if we assume consumer allocates all of his income on the purchase of apples, then he can purchase at most 5 units of apples and 0 units of oranges and we are reporting that particular combination with combination C. So, this C is basically horizontal intercept that indicate maximum quantity of apples that a consumer can purchase when he allocates all of his income on the purchase of apples. Similarly, the point A in the given diagram is the vertical intercept that indicate maximum quantity of oranges that a consumer can purchase by using his limited income when he allocates all of his income on the purchase of oranges. And similarly, B denotes a combination where a consumer is purchasing a mix of apples and oranges. In fact, all the combinations that lie in that lie below are on the budget line AC. It denotes the feasible combination. It denotes attainable combination for a particular consumer that he can afford by using his limited income. And all those combinations that lie above to this budget constraint are those combinations that are not attainable for that particular consumer by using his limited income. As far as the slope of the budget line is concerned, budget line is a negatively sloped curve. If consumer wants to increase the purchase of one commodity, he has to decrease the purchase of other commodity to keep his expenditures constant. In fact, budget line reports all those combination of two commodities where expenditures of the consumer does not change. And if we make discussion about the slope of the budget line, in fact, it is the ratio of the negative of the price of apples over price of oranges. For example, if we divide price of apples with price of oranges, then we can find out slope of the budget line. In our example, where we consider price of apples is equal to 40 and price of oranges is equal to 20, slope of the budget line is equal to minus 2 and we are getting this minus 2 by dividing 40 with 20. So, the thing that play an important role in the determination of the slope of the budget line, it is the price of commodities that are being purchased by a particular consumer. And the determination of the slope of the budget line, income has no role. So, if there is any change in the prices of the commodities, there is a change in the slope of the budget line. If we summarize all the modules, then all the modules tell us something about the budget constraint. A budget constraint is a negatively sloped curve. Budget constraint depends upon the income of the consumer. In the determination of the budget constraint, prices of the commodities play its role. In the determination of the budget constraint, income of the consumer also play its role. So, in the determination of the budget constraint, prices and income are key determinant. But in the determination of the slope of the budget line, only prices of the commodities play its role. Thank you very much.