Definition of Budget Set


The budget set is the set of bundles of goods an agent can afford. This set is a function of the prices of goods and the agents endownment.

Assuming the agent cannot have a negative quantity of any good, the budget set can be characterized this way. Let e be a vector representing the quantities of the agent's endowment of each possible good, and p be a vector of prices for those goods. Let B(p,e) be the budget set.

Let x be an element of R+L; that is, the space of nonnegative reals of dimension L, the number of possible goods. Then:

B(p,e) = {x: px <= pe}

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Econterms. "Definition of Budget Set." ThoughtCo, Jun. 30, 2014, Econterms. (2014, June 30). Definition of Budget Set. Retrieved from Econterms. "Definition of Budget Set." ThoughtCo. (accessed May 22, 2018).