Budget Constraint What constrains consumption choice? Budgetary time other resource limitations
Budget Constraint What constrains consumption choice? –Budgetary – time –other resource limitations
Budget Constraints Commodity prices are p1, p23., pn Q: When is a bundle(X1……,xn affordable at prices p,,...,pn? A When p11+∴+pnXn≤m where m is the consumers (disposable income
Budget Constraints Commodity prices are p1 , p2 , … , pn . Q: When is a bundle (x1 , … , xn ) affordable at prices p1 , … , pn? A: When p1x1 + … + pnxn m where m is the consumer’s (disposable) income
Budget Constraints The bundles that are only just affordable form the consumers budget constraint. This is the set {(X13…xn)|X1≥0,…,xn≥0and p1X1+…+pnXn=m}
Budget Constraints The bundles that are only just affordable form the consumer’s budget constraint. This is the set { (x1 ,…,xn ) | x1 0, …, xn and p1x1 + … + pnxn = m }
Budget Constraints The consumer' s budget set(预算集 is the set of all affordable bundles B(p1…,pnm) (X1,…Xn)|X1≥0,……,xn≥0and p1x1+…+pnXn≤m} The budget constraint is the upper boundary of the budget set
Budget Constraints The consumer’s budget set （预算集 ）is the set of all affordable bundles; B(p1 , … , pn , m) = { (x1 , … , xn ) | x1 0, … , xn 0 and p1x1 + … + pnxn m } The budget constraint is the upper boundary of the budget set
Budget set and constraint for Two Commodities m|2 Budget constraint is P1X1+ p2X 2=m m/p
Budget Set and Constraint for Two Commodities x 2 x1 Budget constraint is p1x1 + p2x2 = m. m /p1 m /p2