University:
Lancaster University
Course:
ECON100 | Principle of Economics
Academic year:

2024
Views:

120

Pages:

2
Author:

Chloe T.

The budget line & choices in economy The budget line To analyze how we choose what to consume, then, we first need to understand how our consumption is limited in the face of an income that we do not choose and prices determined by “the market”. You are a student so you went to college or want to see your life not only in an intellectual way but also financially. if you graduate, be prepared to earn three times as much over your lifetime than if you were a high school grad. However, when you have gotten to that new level of income there will still be a cap on what you can purchase. Ah, but before that, back to the present. For example, imagine you have an extra $50 a week that you can either spend on pizza or wall climbing. This is a proxy for the general tradeoff between food and fun. It wouldnt matter if we were using other or more goods, it functions according to the same pattern. For instance, if each pizza cost $10, and you have to spend $20 on one hour of wall climbing, then both of you can either make 2.5 hours worth of wall climbing or eat 5 pizzas each in total hour per week or some mix of the two. Using matplotlib, Figure 4.ideal is snippet with your us choices This budget line (constraint) looks a lot like the production possibilities frontier (PPF) we discussed earlier. Although you might want more of both goods, what you can do is restricted to choosing between points on the budget line and, if you want to save any part of your $50 weekly budget, inside the budget line. But, just like with the PPF any points to the right of this line you cannot achieve —you do not have enough income. Maybe you buy 5 pizzas a week—which is great if pizzas cost $10 each but wall climbing costs $20 per hour, and you have just $50 to spend (12). It delineates all the different purchasing combinations of two products, based on a specific budget. In this case, the budget line also makes note that many different combinations of EXHAUST YOUR $50 BUDGET AND WALL CLIMBING + EATING PIZZAS. So, which one of these potential combinations are you going to choose? Well, this personal choice depends on everyone to prefer the mechanism. You might make different choices If you are an italian in love with pizza or a fitness enthusiast who only very occasionally eats high-fat meals. The different options offer the kind of pleasure you should be able to expect from your preferences. In the next section of this chapter, we find out what makes choices optimal. As with any money, the budget line is changeable in accordance with changes in commodity prices and / or income. A change in the price of a good or income renders different combinations of goods affordable. Now, how does the budget line shift.