 Module 16, budget constraint. Budget constraint in fact denotes the ability part of the consumer to how much quantities of commodities can be purchased by a particular consumer by using his limited income. If there is any change in income of the consumer, it has some impact on the budget line of the consumer. It has some impact on the budget constraint of the consumer. For example, in this diagram, if we take income of the consumer is equal to 200 rupees, then all different combinations of apples and oranges that a consumer can afford, we are denoting with budget line AB. And if we assume there is an increase in income of the consumer keeping prices of commodities remain constant. There is no change in the prices of the commodities. There is only change in income of the consumer. If income of consumer becomes double, then after doubling of income, consumer can purchase double of the quantities of both commodities. And we are denoting all those combinations with budget line EF. If income of the consumer is equal to 400, then he can purchase all those combination of commodities that we are denoting on the budget line EF. With reference to original budget constraint, if if we assume that the income of the consumer is half, and because of that decrease in income, the ability of the consumer to buy different quantities of apples and oranges, it will decrease. With reference to original budget constraint, if we assume income of the consumer becomes 100 rupees, then now he has to allocate this 100 rupees on the purchase of apples and oranges. And because of this decrease in income, budget constraint of the consumer will shift from AB to GH. So, if income of the household increases, budget line will shift outward. If income of the consumer decreases, then budget line of the consumer will shift downward. When there is no change in the prices, if income increases or decreases, it will result in parallel shift of the budget line. And similarly, it might be possible, if we assume the prices of income of the household, there is no change in income of the household. There is only, there is simultaneous decrease in the prices of both commodities. If we assume the prices of both apples and oranges reduced to half, initially if we assume price of apple is equal to 40, price of oranges is equal to 20. But if we make an assumption, if price of apples in the market becomes 20 and price of oranges in the market becomes 10, there is 50% reduction in the prices of both commodities. Because of that reduction in the prices of both commodities, budget constraint, budget line of the consumer will also shift outward. Similarly, if we assume there is proportionate increase in the prices of both commodities. So, because of that increase in the prices, when income of the consumer remains constant, our budget line will shift downward. Initially, our budget line is equal to AB, when price of apples is equal to 40 and price of oranges is equal to 20 and income of the consumer is equal to 200. But if income of the consumer remain constant, there is no change in income of the consumer, but price of apples become 80 and price of oranges become 40 because of that increase in prices of both commodities. Again, our budget line will shift downward. So, in nutshell, we can say if income of the consumer increases, keeping prices of commodities constant or prices of both commodities decreases simultaneously at a certain rate, while income of the consumer remain constant, our budget line will shift outward. Similarly, if we assume there is a decrease in income, but prices of commodities remain constant. Under that situation, our budget line will shift downward. This downward shift can be observed when we see prices of both commodities are increased simultaneously at a certain rate, while income of the consumer remain constant, then our budget line will shift downward. Similarly, it might be possible that there is no change in price of one commodity and no change in income of the consumer and there is change in price of one commodity only. For example, in this diagram, we are denoting one budget line as an original budget line and if we make assumption there is a decrease in price of apples, but no change in price of oranges and no change in income of the consumer. In that case, our horizontal intercept will shift outward. Our budget line will pivot outward along horizontal axis and similarly, if we make an assumption that there is increase in price of apples while price of oranges remain constant, income of the consumer remain constant. In that case, our original budget line will pivot inward. Our horizontal intercept will pivot inward and we are labeling that diagram by putting price of apples increases. Similarly, if we assume there is no change in price of apples and no change in price of income, again we are in fact, we are reporting a budget line that we labeled with original. This original budget line indicate that by using his limited income consumer can purchase at most 10 units of oranges and 5 units of apples. And if we assume there is a decrease in price of oranges, suppose price of oranges become half because of that decrease in price of oranges when there is no change in income of the household, no change in price of apples, our budget line will pivot outward along vertical axis. There is an outward shift of our vertical intercept. Similarly, if we assume with reference to original budget line, there is an increase in price of oranges while price of apples remain constant, income of the consumer remain constant. In that situation, the budget line vertical intercept of the budget line will shift downward while there is no change in horizontal intercept of the budget constant. From this discussion about the budget constant, we can see budget line has a constant slope. Budget line is a negatively sloped curve but slope of the budget line is constant. The budget line shifts upward or downward whenever there is a change in income. Similarly, the budget line will shift, there is a parallel shift in the budget line outward or inward when there is proportionate increase in prices of both commodities. Our proportion decrease in prices of both commodities keeping income of the consumer constant and budget line, slope of the budget line depends upon the price ratio of two commodities. If there is a change in the prices of any commodity, it results in results in change in slope of the budget line. Because of change in the prices of commodities, slope of the budget line will change. When price of the commodity that we are taking on horizontal axis decreases, then our budget line will become flatter. If price of commodity on vertical axis decreases, then our budget line will become steeper. So, slope of the budget line, slope of the budget constraint depends upon the prices of commodities that are under concentration. Hopefully, after studying this module you are very much clear about slope of the budget constraint, impact of increase in income and decrease in income on budget constraint and changes in price of commodities on the slope of the budget line. Thank you very much.