budget constraint

A budget constraint represents the limitations on spending based on income and prices of goods. It shows the combination of different items a person can purchase without exceeding their budget. For example, if you have $100, you can buy various combinations of food, clothing, or entertainment, but you can't spend more than $100. This concept helps individuals and businesses make choices about how to allocate their resources efficiently while ensuring they stay within their financial means. Essentially, it highlights the trade-offs involved in decision-making when resources are limited.