Consumption possibilities: consumption choices are limited by income and by prices. A household"s budget line describes the limits to its consumption choices. Divisible and indivisible goods: some goods can be bought in any quantity desired. Affordable and unaffordable quantities: it marks the boundary between what is affordable and what is unaffordable. Budget equation: we can describe the budget line by using a budget equation. The budget equation starts with the fact that: Expenditure is equal to the sum of the price of each good multiplied by the quantity bought. Expenditure= (price of pop x quantity of pop) = (price of movie x quantity of movies). Call the price of pop pp the quantity of pop qp, the price of a movie pm, the quantity of movies qm, and income y. We can now write lisa"s budget equation as: Real income: a household"s real income is its income expressed as a quantity of goods that the household can afford to buy.