Budget line - Definition and Overview

Given an allocation of two goods, the budget line through that allocation is the set of all other allocations of the two goods that someone in a market could arrive at by selling one of the goods for the other. For instance, if I have four dogs and two horses, and each horse is worth two dogs, then the budget line through my present allocation includes the following other allocations:

eight dogs

six dogs and one horse

two dogs and three horses

four horses

It is often useful to plot budget lines in conjunction with indifference curves. Budget lines are the same throughout a market, but indifference curves are personal. A budget line tangent to Bob's indifference curve represents an allocation from which Bob cannot trade without reaching a less valuable (to Bob) allocation. At any other allocation, Bob will trade.