Editing Budget constraint (section)

=== Individual choice ===
[[File:Indifference curves showing budget line.svg|thumb|right|An individual should consume at (Qx, Qy).]]
[[Consumer behaviour]] is a [[Maximization (economics)|maximization]] problem. It means making the most of our limited resources to maximize our [[Utility (economics)|utility]]. As consumers are insatiable, and utility functions grow with quantity, the only thing that limits our consumption is our own budget.<ref>{{Cite web|url=https://policonomics.com/budget-constraint/|title=Budget constraint |work=Policonomics}}</ref>

In general, the budget set (all bundle choices that are on or below the budget line) represents all possible bundles of goods an individual can afford given their income and the prices of goods. A common assumption underlying consumer theory is the concept of well-behaved preferences, and as such, the direction of an individual's preferences will point 45 degrees from the origin. When behaving rationally, an individual [[consumer]] should choose to consume goods at the point where the most preferred available [[indifference curve]] on their [[indifference curve#Map and properties|preference map]] is [[tangent]] to their budget constraint. The tangent point (the xy coordinate) represents the amount of goods x and y the consumer should purchase to fully utilize their budget to obtain maximum utility.<ref>Lipsey (1975). p 182.</ref> It is important to note that the optimal consumption bundle will not always be an interior solution. If the solution to the optimality condition leads to a bundle that is not feasible, the consumer's optimal bundle will be a [[corner solution]] which suggests the goods or inputs are perfect substitutes. A line connecting all points of tangency between the indifference curve and the budget constraint is called the [[expansion path]].<ref name="Salvatore">Salvatore, Dominick (1989). ''Schaum's outline of theory and problems of managerial economics,'' McGraw-Hill, {{ISBN|978-0-07-054513-7}}</ref>

All two dimensional budget constraints are generalized into the equation:

<math>P_x x+P_y y=m</math>

Where:
* <math>m=</math> money income allocated to consumption (after saving and borrowing)
* <math>P_x=</math> the price of a specific good
* <math>P_y=</math> the price of all other goods
* <math>x=</math> amount purchased of a specific good
* <math>y=</math> amount purchased of all other goods

The equation can be rearranged to represent the shape of the curve on a graph:

<math>y= (m/P_y)-(P_x/P_y) x</math>, where <math>(m/P_y)</math> is the y-intercept and <math>(-P_x/P_y)</math> is the slope, representing a downward sloping budget line.

The factors that can shift the budget line are a change in income (m), a change in the price of a specific good (<math>P_x</math>), or a change in the price of all other goods (<math>P_y</math>).