A line in commodity space which shows the constraints imposed by his budget, his money income and the price of goods purchased is

Analyze the question

The question asks for the name of a line drawn in commodity space (a graph with two goods on the axes) that shows the limits placed on a consumer by his money income and the prices of the goods he buys.

Explain the concept

A consumer cannot buy unlimited quantities of goods. He is limited by:

1. His money income
2. The prices of the goods

The budget line (also called the price line or budget constraint) shows all the combinations of two goods that a consumer can afford if he spends his entire income.

If income = M, price of good X = Px and price of good Y = Py, the budget line is:

M = Px·X + Py·Y

Show the solution

Example: A student has ₦1,000. Biscuit costs ₦100 and Pure Water costs ₦50.

• If he buys only biscuits: 1,000 ÷ 100 = 10 biscuits
• If he buys only pure water: 1,000 ÷ 50 = 20 sachets
• Joining these two points on a graph gives a straight line, which is the budget line.

Any point on the line or inside it is affordable. Any point outside it is not.

Checking the options

• A. Supply curve: shows the relationship between price and quantity supplied by producers. It is not about a consumer's budget.
• B. Liquidity preference: Keynes' theory of the demand for money. It is not a line in commodity space.
• C. Budget line: correct. It shows the constraint from income and prices.
• D. Demand curve: shows price against quantity demanded. It is not drawn in commodity space and does not show an income constraint directly.

Answer: C. Budget line

Exam tip: When you see "income" and "prices" together with "constraint" or "commodity space", think budget line. When indifference curves are involved, the consumer's equilibrium is where the budget line is tangent to the highest possible indifference curve.