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Unformatted text preview: n pop and
movies is:
(Price of pop) x (quantity of pop) +
(Price of movies) x (quantity of movies)
Her income is $30. The Budget Equation
Pp = price of pop
Pm = price of movies
Qp = quantity of pop
Qm = quantity of movie
y = income. Lisa’s budget line can be written as:
Pp Qp + Pm Qm = y
or, $3 Qp + $6 Qm = $30 The Budget Equation
The
We can rewrite the budget line to show how the
quantity of pop Lisa can buy depends on how
many movies she sees.
Step 1: Divide both
Step
sides by Pp
sides
Step 2:
Pm
xQm
Pp Subtract
from both
from
sides Pm
y
Qp +
xQm =
Pp
Pp
y Pm
Qp =
−
xQm
Pp Pp The Budget Equation
The
Step 3: Substitute in
Step
the prices Lisa pays
for pop and movies
and her income
and $30 $6
Qp =
−
xQm
$3 $3 Qp = 10 − 2Qm Step 4: Simplify!
. Real Income
Real inco...
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This document was uploaded on 03/14/2014.
 Fall '14

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