Chapter Two Budget Constraint
Chapter Two Budget Constraint
Where are We in the course? We are working on the 1t of the 3 components of microeconomics: Consumer behavior, production theory, and market There are three elements of consumer behavior: budget constraint, preference, and choices
Where are We in the Course? We are working on the 1st of the 3 components of microeconomics: Consumer behavior, production theory, and market. There are three elements of consumer behavior: budget constraint, preference, and choices
Consumption Choice Sets A consumption choice set is the collection of all consumption choices availlable to the consumer What constrains consumption choice? Budgetary, time and other resource limitations
Consumption Choice Sets A consumption choice set is the collection of all consumption choices available to the consumer. What constrains consumption choice? –Budgetary, time and other resource limitations
Budget Constraints Q: When is a bundle (x,.., Xni affordable at prices p1,.,pn? A: When p11+∴+pnXn≤m where m is the consumers (disposable)income
Budget Constraints 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 consumers budget set 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 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