ECON 306 Lecture Notes - Lecture 3: Composite Good, Cartesian Coordinate System, Budget Constraint

• School: University of Maryland
• Department: Economics
• Course: ECON 306
• Professor: Peter Coughlin

Document Summary

First in a series of chapters which introduce students to a micro theory of consumers. Develops and analyzes the textbooks model of what a consumer can afford. Two goods (or commodities ) called good 1 and good 2 (or commodities 1 and. X1 > 0 & x2 > 0. M, the amount of money the consumer can spend (also called income in the textbook) The ordered pair (x1,x2) (with x1 units of good 1 and x2 units of good 2) is called a. Money spent on good 1 = p1x1. Money spent on good 2 = p2x2. Total money spend = p1x1 + p2x2. Q: when is a bundle, (x1,x2), affordable at prices p1 and p2. A: when p1x1 + p2x2 < m. This inequality is called the budget constraint . The consumer"s budget set is the set of all affordable bundles.