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Chapter 2 Budget Constraint. The Budget Constraint. m=p1*x1+p2*x2 where I=income, assumed to be given p1=price of x1, assumed to be given. p2=price of x2, assumed to be given. 02.01. Key elements that affect the budget line.

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Presentation Transcript
the budget constraint
The Budget Constraint
  • m=p1*x1+p2*x2
  • where I=income, assumed to be given
  • p1=price of x1, assumed to be given.
  • p2=price of x2, assumed to be given.
key elements that affect the budget line
Key elements that affect the budget line
  • m (shifting the line up or down without affecting its slope)
  • Either p1 or p2 affects its slope and position
slide10

x2

Budget line:

Buy one and get the second one

at half price

x1

1

2

3

4

slide11

x2

Budget line:

Buy one get one

free

x1

3

1

2

4

slide12
This concludes the Norton Media LibrarySlide Set for Chapter 2IntermediateMicroeconomics 6th EditionbyHal R. Varian

W. W. Norton & CompanyIndependent and Employee-Owned