The budget constraint - Topic 2.pdf - s2 The budget constraint Week 2 © 1 Introduction s2 The optimal choice of the consumer is determined by • The

The budget constraint - Topic 2.pdf - s2 The budget...

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© s 2 Week 2 The budget constraint 1
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© s 2 Introduction The optimal choice of the consumer is determined by The budget constraint (week 2) The indifference curve (week 3) The BC allows to define the purchasing power, and the effect of price changes. 2
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© s 2 1.The budget constraint The consumer is subject to a financial constraint, that establishes that the sum of the expenses has to be less or equal than the sum of revenues. Example Peter receives an income of 4000 euros per month. After paying some fixed costs, he is left with 500 euros, for his leisure, which is theatre and opera. The price of an opera ticket is 100 euros and the price of a theatre ticket is 50 euros. With this level of income, he may go 3 times to the opera and 4 times to the theatre. 3
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© s 2 1.The budget constraint The budget constraint can be defined as the set of consumption bundles that can be attained at a given price system and income level 4 c 1 c 2 I<E I>E I=E
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© s 2 1.The budget constraint
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  • Winter '16
  • ANTONIO Loeper

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