ECON 1B03 Lecture Notes - Lecture 6: Budget Constraint, Opportunity Cost

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

When choosing which goods to purchase, consumers face two constraints: You can only buy what you can afford. The budget constraint, bc, illustrates the limit on the consumption bundles that a consumer can afford. The budget constraint shows various combinations of goods the consumer can afford, given his or her income and the prices of the two goods. Any point on the budget constraint line indicates the consumer"s combination or tradeoff between two goods. The budget constraint gives combinations where the consumer is spending all of their income. ** by income, we mean the income allocated to spending on the goods and services. Normally, consumers will save some of their income and we don"t expect them to spend that. Suppose mickey has an income of which he can spend on tickets to hockey games and/or basketball games. Ph = price of hockey tickets = per ticket. Pb = price of basketball tickets = per ticket.