Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 10, Problem 11P
To determine

Concept introduction:

Budget Constraint: It is defined as the combination of all goods that a consumer can afford, given the price of goods and his total income. The formula for the budget constraint is:

Economics, Chapter 10, Problem 11P , additional homework tip  1

Here,

  • Economics, Chapter 10, Problem 11P , additional homework tip  2is the quantity of good X.
  • Economics, Chapter 10, Problem 11P , additional homework tip  3is the quantity of good Y.
  • Economics, Chapter 10, Problem 11P , additional homework tip  4is the total income.
  • Economics, Chapter 10, Problem 11P , additional homework tip  5is the price of good X.
  • Economics, Chapter 10, Problem 11P , additional homework tip  6is the price of good Y.
  • If the total expenditure is equal to the total income, then it is within the consumption possibilities and it lies on the budget line.
  • If the total expenditure is less than the total income, then it is within the consumption possibilities but lies below the budget line.
  • If the total expenditure is more than the total income, then it is out of the consumption possibilities and lies above the budget line.

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