ECO 304K Lecture Notes - Lecture 5: Budget Constraint, Internet Exchange Point, Indifference Curve
26 Sep 2016
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Perfect knowledge (page 111): the assumption that households possess a knowledge of the qualities and prices of everything available in the market and that firms have all available information concerning wage rates, capital costs, and output prices. This assumption makes a lot of what we do much simpler. How much of each product, or output, to demand. How much to spend today and how much to save for the future. The income and wealth available to the household. The prices of other products available to the household. The household"s tastes and preferences (only factor that is based off of what you like rather than what you can afford) Budget constraint (page 113): the limits imposed on household choices by income, wealth, and product prices. Points on the budget constraint use all income. The equation of the budget constraint: in general, the budget constraint can be written: pxx + Three parts to a budget constraint graph:
