Intermediate microeconomics

Chapter 1 : Budget Constraint

By Lund University

This chapter is based on chapter 2 of Intermediate microeconomics by Hal Varian. We begin this chapter by introducing the two-goods model, a model we will work with for the first five chapters. We have two goods, two prices and one individual with income m. This chapter is about the restrictions faced by the consumer who cannot spend more than her income. The most important concept in the chapter is the budget line and we will see how to draw the budget line and how it changes when prices and/or income change.

Lectures

The two goods model

Total expenditure

Budget line

Budget line, explicit and implicit

Drawing the budget line

Changing several parameters in the equation of the budget line

Normalization