Professional Documents
Culture Documents
Microsoft PowerPoint - Ch02 (호환 모드)
Microsoft PowerPoint - Ch02 (호환 모드)
Budget Constraints
A consumption bundle containing x1 units of commodity 1, x2 units of commodity 2 and so on up to xn units of commodity n is denoted by the vector (x1, x2, , xn). Commodity prices are p1, p2, , pn.
Budget Constraints
Q: When is a consumption bundle (x1, , xn) affordable at given prices p1, , pn?
Budget Constraints
Q: When is a bundle (x1, , xn) affordable at prices p1, , pn? A: When p1x1 + + pnxn m where m is the consumers (disposable) income.
Budget Constraints
The bundles that are only just affordable form the consumers budget constraint. This is the set { (x1,,xn) | x1 0, , xn 0 and p1x1 + + pnxn = m }.
Budget Constraints
The consumers budget set is the set of all affordable bundles; B(p1, , pn, m) = { (x1, , xn) | x1 0, , xn 0 and p1x1 + + pnxn m } The budget constraint is the upper boundary of the budget set.
x
2
m /p2
m /p1
x1
x
2
m /p2
m /p1
x1
x
2
m /p2
m /p1
x1
x
2
m /p2
m /p1
x1
x
2
m /p2
m /p1
x1
x
2
m /p2
x
2
m /p2
Budget Constraints
If n = 3 what do the budget constraint and the budget set look like?
m /p3
x3
m /p1
x1
x3
m /p1
x1
Budget Constraints
For n = 2 and x1 on the horizontal axis, the constraints slope is -p1/p2. What does it mean?
p1 m x2 = x1 + p2 p2
Budget Constraints
For n = 2 and x1 on the horizontal axis, the constraints slope is -p1/p2. What does it mean?
p1 m x2 = x1 + p2 p2
Increasing x1 by 1 must reduce x2 by p1/p2.
Budget Constraints
x2 Slope is -p1/p2 -p1/p2 +1
x1
Budget Constraints
x2 Opp. cost of an extra unit of commodity 1 is p1/p2 units foregone of commodity 2. -p1/p2 +1
x1
Budget Constraints
x2 Opp. cost of an extra unit of commodity 1 is p1/p2 units foregone of commodity 2. And the opp. cost of an extra +1 unit of commodity 2 is -p2/p1 p2/p1 units foregone of commodity 1. x1
How do the budget set and budget constraint change as income m x2 increases?
How do the budget set and budget constraint change as income m x2 decreases?
How do the budget set and budget constraint change as income m x2 decreases?
Consumption bundles that are no longer affordable. New, smaller budget set Old and new constraints are parallel. x1
How do the budget set and budget constraint change as p1 decreases x2 from p1 to p1?
m/p2 -p1/p2 Original budget set m/p1 m/p1 x1
How do the budget set and budget constraint change as p1 decreases x2 from p1 to p1?
m/p2 New affordable choices -p1/p2 Original budget set m/p1 m/p1 x1
How do the budget set and budget constraint change as p1 decreases x2 from p1 to p1?
m/p2 New affordable choices -p1/p2 Original budget set Budget constraint pivots; slope flattens from -p1/p2 to -p1/p2 -p /p
1 2
m/p1
m/p1
x1
p1x1 + p2x2 = m
m p1
x1
m (1 + t ) p2
m (1 + t ) p1
m p1
x1
m (1 + t ) p2
m (1 + t ) p1
m p1
x1
m (1 + t ) p2
A uniform ad valorem sales tax levied at rate t is equivalent to an income t tax levied at rate
1+ t
m (1 + t ) p1
m p1
x1
G 100
100
G 100
100
G 100
40
100 140
G 100
G 120 100
40
100 140
G 120 100
x2
100
80
x1
x2
100
80
x1
x2
100
Budget Set
20 50
80
x1
x2
Budget Set x1
10
10
Food
10
Food
10
Food
10
Food
10
Food