Budget Set and Constraint for Two Commodities X 2 Budget constraint is m/p2 P1X1+ P2X2 m t Not affordable Just affordable Affordable m/p1
Budget Set and Constraint for Two Commodities x 2 x1 Budget constraint is p1x1 + p2x2 = m. m /p1 Affordable Just affordable Not affordable m /p2
Budget Set and Constraint for Two Commodities m/p2V P1x1+p2x2=m is x2=-(pp2)X1+m/p2 so slope is-p,/p2 Budget Set m/p1
Budget Set and Constraint for Two Commodities x 2 x1 p1x1 + p2x2 = m is x2 = -(p1 /p2 )x1 + m/p2 so slope is -p1 /p2 . m /p1 Budget Set m /p2
Budget Constraints If n =3 what do the budget constraint and the budget set look like?
Budget Constraints If n = 3 what do the budget constraint and the budget set look like?
Budget Set for Three Commodities x2{(x1X2x)1x1≥0,x2≥0,x3≥0and m/p2 p1X1+p2X2+p3X3≤m m|3 m/p
Budget Set for Three Commodities x2 x1 x3 m /p2 m /p1 m /p3 { (x1 ,x2 ,x3 ) | x1 0, x2 0, x3 0 and p1x1 + p2x2 + p3x3 m}
Budget Constraints For n=2 and x on the horizontal axis, the constraint's slope is-p1/p2 What does it mean? p1 1 p2 p2 Increasing x, by 1 must reduce x2 by p,p2
Budget Constraints For n = 2 and x1 on the horizontal axis, the constraint’s slope is -p1 /p2 . What does it mean? Increasing x1 by 1 must reduce x2 by p1 /p2. x p p x m p 2 1 2 1 2 = − +