Question

Define budget set.

Give the equation of Budget Set.

Answer 1

A budget set refers to attainable bundles of a set of two goods, given the prices of goods and the income of the consumer.

Equation of the budget set is P₁X₁ + P₂X₂ < M. where

X₁ = Quantity of Good-1
X₂ = Quantity of Good-2
P₁ = Price of Good-1
P₂ = Price of Good-2