Consumption_Possibilities - Microeconomics Handout...

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Microeconomics   Handout: Consumption Possibility Frontier Definition: The consumption possibility frontier illustrates all of the combinations of two goods, X and Y, that can be purchased from a given fixed budget or budget when the prices of X and Y are known. The Assumptions: To illustrate a consumption possibility frontier, we need to make a few assumptions. Define the price of good X as P X , where P stands for price and the subscript X denotes good X. Similarly, define the price of good Y as P Y . Let us furthermore assume the existence of a fixed budget, defined as B, which is to be completely spent, i.e., there will be no saving. An Expository Example: Imagine 2 goods, twinkies and cornfritters. Fritters sell for $1.00 each while twinkies sell for $2.00. Given an budget of $10.00, list all of the possible combinations of twinkies and fritters that you can purchase. Let X = twinkies, P X = $2; Y = fritters, P Y = $1; B = $10.
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