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The budget constraint
- what you can afford
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To determine your budget constraint, you need to know the prices of what you
want to buy and the total amount of money budgeted for the items
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Ex: One steak costs $4, bananas cost $1 per pound, and you have a total of $16
to spend on both goods. So you could either use your whole budget to buy
steaks which would get you 4 steaks, or you could use the whole budget to buy
bananas which would get you 16 pounds of bananas. Or you can buy a combo of
both foods
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The choices can be represented on a graph, with the quantity of each good
measured on the axes
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For example, with a budget of $16, the intercept along the steak axis shows the
max number of steaks you can afford, while the other intercept shows the max
number of bananas
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Drawing a line between both intercepts shows the possible
combination of steaks and bananas you can buy with your budget →
the line is called the
budget line
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