ECON 212 Chapter Notes - Chapter 4: Budget Constraint, Internetwork Packet Exchange
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ECON 212 Full Course Notes
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The budget constraint defines the set on bundles that a consumer can purchase with a limited amount of income pxx + pyy i. Price of good 1 = px and price of good 2 = py and income is fixed at i. The budget line is the set of the bundles a consumer can buy if they spend all their available income in the two goods i = pxx + pyy. When drawing the budget line, y-int = i/py, x-int = i/px, and slope = px/py. The slope tells us how many units of the good on the vertical axis a consumer must give up to get one unit of the good on the horizontal axis. An increase in income shifts the budget line out to the right, expanding the consumers purchasing ability (can buy more) A decrease in income shifts the budget line in to the left the consumer has more limited consumption opportunities (can buy less)