ECON 101 Lecture Notes - Lecture 31: Budget Constraint, Demand Curve, Production Function
Document Summary
In consumption decisions, unalike production decision, a budget constraint. Budget line: represents all the possible combinations of quantities of potatoes and clams that. Sammy can purchase if he spends all of his income. It is also the boundary between the set of affordable consumption bundles (the consumption possibilities) and unaffordable ones. When you are on the frontier, you set the budget constraint as equal to the income that you have. An increase in budget shifts the budget constraint outward, and a decrease in budget constraint shifts inwards. If prices change, the slope of the budget changes. Let us focus on the effect of a price change on the utility/dollar of a product. As the price of one product changes (with the price of the other product and income remaining the same), the ratio mug/pg = mui/pi, will be unbalanced and the quantity must change. As we know various combinations of quantity and the associated price yield a demand curve.
