ECON281 Lecture Notes - Lecture 1: Budget Constraint, Opportunity Cost

• School: University of Alberta
• Department: Economics
• Course: ECON281
• Professor: Valentina Kozlova

Document Summary

A consumption choice set is the collection of all consumption choices available to the consumer. What constrains consumption choice: budgetary, time, and other resource limitations. Each person is trying to buy the best thing within their own limitation/can afford. 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): for two goods, the consumption bundle is (x1, x2). Commodity prices are denoted by the vector (p1, p2, . , pn): for two goods, the price vector is (p1, p2). For illustrative purposes, we limit our variables to two commodities. When is a bundle (x1, x2) affordable at prices (p1, p2): when p1x1 + p2x m, where m is the consumer"s (disposable) income. We have to distinguish between a budget set and a budget constraint. P1 and p2 are commodities that are limited with our budget (m).