What does the budget constraint line show?
In a budget constraint, the quantity of one good is measured on the horizontal axis and the quantity of the other good is measured on the vertical axis. The budget constraint shows the various combinations of the two goods that the consumer can afford.
What will happen to the marginal utility per dollar spent on movies?
(i) What will happen to the marginal utility per dollar spent on movies? States that the increase in income has no impact on the marginal utility per dollar spent on movies.
What is the slope of the budget constraint called?
The slope of the budget line is also called the economic rate of substitution (ERS). The slope of the budget line also represents the opportunity cost of consuming more of good A because it describes how much of good B the consumer has to give up to consume one more unit of good A.
What is budget constraint with example?
A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase.
What is budget line example?
Example of a Budget Line
| Budget schedule | ||
|---|---|---|
| A | 0 | 10 × 0 + 5 × 10 = 50 |
| B | 1 | 10 × 1 + 5 × 8 = 50 |
| C | 2 | 10 × 2 + 5 × 6 = 50 |
| D | 3 | 10 × 3 + 5 × 4 = 50 |
How individuals make choices based on their budget constraint?
Individuals face the tradeoff of what quantities of goods and services to consume. The budget constraint, which is the frontier of the opportunity set, illustrates the range of choices available. The slope of the budget constraint is determined by the relative price of the choices.
What is the utility maximizing point given a consumption budget constraint?
Utlity Maximization Given the goal of consumers is to maximize utility given their budget constraints, they seek that combination of goods that allows them to reach the highest indifference curve given their budget constraint. This occurs where the indifference curve is tangent to the budget constraint (combination A).
How do you draw a budget constraint line?
Since the equation for the budget constraint defines a straight line, it can be drawn by just connecting the dots that were plotted in the previous step. Since the slope of a line is given by the change in y divided by change in x, the slope of this line is -9/6, or -3/2.
What is budget constraint simple words?
The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. Opportunity cost measures cost in terms of what must be given up in exchange.
What is budget constraint and budget line?
In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices .