Consumption_Possibilities

Consumption_Possibilities - Microeconomics Handout...

This preview shows pages 1–2. Sign up to view the full content.

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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern