ECON 2GG3 Chapter Notes - Chapter 3: Budget Constraint, Real Income, Opportunity Cost
16 Jun 2016
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These constraints include: limits on income, time, and human resources, they also include social customs, laws, and threats of violence, time is another constraint. A consumers attainable consumption bundle is the bundles that this consumer can actually afford to buy. A attainable consumption bundle is one that is affordable, given the consumer"s budget constraint. An attainable consumption bundle is any bundle that satisfies the following inequality: o: where the consumer"s budget (or income) is m. The inequality itself is called the budget constraint. The attainable bundles on the line p1x1 + p2x2 = m use up all of the consumer"s budget, whereas attainable bundles below the line do not: this line itself is commonly called the budget line. Real income is m/p2 vertical intercept. What matters for economic behavior is not the nominal prices p1 and p2, or the nominal income, m, but the prices and incomes in terms or real goods.
