BudgetConstraint.ppt49
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Chapter Two
Budget Constraint
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 available to the consumer.
What constrains consumption choice?
Budgetary, time and other resource limitations.
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 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.
Budget Set and Constraint for Two Commodities
Budget Set and Constraint for Two Commodities
Budget Constraints
If n = 3 what do the budget constraint and the budget set look like?
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