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microbook_3e-page62 - towards only two goods X and Y income...

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Household Choice in Output Markets Determinants of Household Demand x price of the product x household’s income x household’s wealth x prices of related products x household’s tastes & preferences x expectations of future income, wealth and prices The Budget Constraint x limits imposed on choices by income, wealth and prices x along and beneath the budget constraint lie all of the possible combinations of goods that a household can purchase y budget constraint x The Budget Constraint When income allocated entirely
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Unformatted text preview: towards only two goods, X and Y, income equals: I = x*p x + y*p y I = consumer’s income x = qty. of good X p x = price of good X y = qty. of good Y p y = price of good Y Intercepts and Slopes When x=0, only good y consumed and I = y*p y and y = y p I When y=0, only good x consumed and I = x*p x and x = x p I So when consumer moves from x=0 to y=0: constraint budget of slope p p p I p I ǻ x ǻ y y x x y Slope of budget constraint equals relative price of good x. Page 62...
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