The two goods model

Summary

The two goods model

• Two goods: good 1 and good 2
• A single point in time
• A single individual
• \(x_1\) : consumption of good 1
• \(x_2\) : consumption of good 2
• Infinitely divisible, \(x_1≥0\) , \(x_2≥0\)
• Price of good 1: \(p_1>0\)
• Price of good 2: \(p_2>0\)
• Prices are fixed
• Consumer has income: \(m>0\)

Consumption bundle

• Consumption bundle: \(\left( x_1,x_2 \right)\) as a point in a Cartesian coordinate system