How to Make a Consumer Budget Line

Economists know that consumers base their spending practices on trade-offs. Typically, to spend more on one budget item, a consumer has to spend less on another. A budget line shows the combination of two items that a consumer can purchase and remain in their budget. While most people purchase more than two items with money in their budget, a budget line is a simple way of showing how different quantities affect a consumer's finances.

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Instructions

- 1
  
  Make a graph of the two items. For example, if the two items are one cup of coffee and 1 gallon of gas, place gallons of gas on the y-axis -- vertical -- and cups of coffee on the x-axis or horizontal line.
- 2
  
  Subdivide each axis into single segments. For example, sequentially number each segment on each axis as 1, 2, 3.
- 3
  
  Find the amount of money that the consumer spends weekly on these two items and the average cost of each item. For example, say the consumer spends $60 per week on coffee and gas; a cup of coffee costs $6 and a gallon of gas costs $3.
- 4
  
  Determine your cross points on your graph. For example, for every cup of coffee, the consumer can purchase 2 gallons of gasoline. Place a point on your graph at the junction of 0 on the y-axis and 10 on the x-axis. This shows that the consumer can purchase 10 cups of coffee and no gasoline with his $60. Label the point "A."
- 5
  
  Calculate that if the consumer buys 2 gallons of gas, he can purchase nine cups of coffee. Place a graph point at the junction of 2 on the y-axis and 9 on the x-axis. Label the point "B." Place another graph point at the junction of 4 on the y-axis and 8 on the x-axis to signify that the consumer can purchase 4 gallons of gas and eight cups of coffee with his $60. Label this point "C." Continue labeling points until you show spending the full amount on gasoline. Place your final point on 20 on the y-axis and 0 on the x-axis. Label this point "K."
- 6
  
  Connect the dots on the graph by drawing a straight line through them making line segment AK. Use this budget line to determine how changes in purchases affect the consumer's budget. For example, if the consumer purchases 10 cups of coffee and 2 gallons of gas, he is over budget. However, if he purchases seven cups of coffee and 2 gallons of gas, he is under budget.