Budget set and constraint for Two Commodities mP/P是m mlp so Slope is -,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
Meaning of the Slope p1 X1+ p2 p2 Increasing x, by 1 must reduce x2 by p,p2 Opportunity cost of consuming x, Or, the rate of exchange that market allows
Meaning of the Slope Increasing x1 by 1 must reduce x2 by p1 /p2. Opportunity cost of consuming x1 Or, the rate of exchange that market allows. x p p x m p 2 1 2 1 2 = − +
Budget Constraints Slope is-卩1p2 p1/p2 +1
Budget Constraints x2 x1 Slope is -p1 /p2 +1 -p1 /p2
Budget Constraints 2\ Opp. cost of an extra unit of commodity 1 is p,p2 units foregone of commodity 2 p1/p2 +1
Budget Constraints x2 x1 +1 -p1 /p2 Opp. cost of an extra unit of commodity 1 is p1 /p2 units foregone of commodity 2
Budget Constraints 2\ Opp. cost of an extra unit of commodity 1 is p,p2 units foregone of commodity 2 +11 Opp. cost of an extra unit of commodity 2 is p2/p1 p2/ p,units foregone of commodity 1
Budget Constraints x2 x1 Opp. cost of an extra unit of commodity 1 is p1 /p2 units foregone of commodity 2. Opp. cost of an extra unit of commodity 2 is p2 /p1 units foregone of commodity 1. -p2 /p1 +1