2.1 How individuals make choices based on their budget constraint

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By the end of this section, you will be able to:

• Calculate and graph budgets constraints
• Explain opportunity sets and opportunity costs
• Evaluate the law of diminishing marginal utility
• Explain how marginal analysis and utility influence choices

Consider the typical consumer’s budget problem. Consumers have a limited amount of income to spend on the things they need and want. Suppose Alphonso has \$10 in spending money each week that he can allocate between bus tickets for getting to work and the burgers that he eats for lunch. Burgers cost \$2 each, and bus tickets are 50 cents each. [link] shows Alphonso’s budget constraint    , that is, the outer boundary of his opportunity set    . The opportunity set identifies all the opportunities for spending within his budget. The budget constraint indicates all the combinations of burgers and bus tickets Alphonso can afford when he exhausts his budget, given the prices of the two goods. (There are actually many different kinds of budget constraints. You will learn more about them in the chapter on Consumer Choices .)

The vertical axis in the figure shows burger purchases and the horizontal axis shows bus ticket purchases. If Alphonso spends all his money on burgers, he can afford five per week. (\$10 per week/\$2 per burger = 5 burgers per week.) But if he does this, he will not be able to afford any bus tickets. This choice (zero bus tickets and five burgers) is shown by point A in the figure. Alternatively, if Alphonso spends all his money on bus tickets, he can afford 20 per week. (\$10 per week/\$0.50 per bus ticket = 20 bus tickets per week.) Then, however, he will not be able to afford any burgers. This alternative choice (20 bus tickets and zero burgers) is shown by point F.

If Alphonso is like most people, he will choose some combination that includes both bus tickets and burgers. That is, he will choose some combination on the budget constraint that connects points A and F. Every point on (or inside) the constraint shows a combination of burgers and bus tickets that Alphonso can afford. Any point outside the constraint is not affordable, because it would cost more money than Alphonso has in his budget.

The budget constraint clearly shows the tradeoff Alphonso faces in choosing between burgers and bus tickets. Suppose he is currently at point D, where he can afford 12 bus tickets and two burgers. What would it cost Alphonso for one more burger? It would be natural to answer \$2, but that’s not the way economists think. Instead they ask, how many bus tickets would Alphonso have to give up to get one more burger, while staying within his budget? The answer is four bus tickets. That is the true cost to Alphonso of one more burger.

what is the difference between explicit cost and implicit cost
explicit cost:it is the cost which company made for purchasing or hiring resources from the factor owner. implicit cost : the cost of the owner of the company pay for the project.
دولت
explicit cost is that cost which is identified by the books of accounts of an organisation
Amulya
implicit cost is that cost which is not shown in the books of accounts but due to this cost organisation gets some benefits
Amulya
what is supply
Motunrayo
The willing and able to sells their goods in various price of a commodity is called supply.
Niraj
what are the laws of supply
Motunrayo
what is lonrenzo curve
osidele
What is price elasticity of demand?
price elasticity of demand is a measure used in economics to show elasticity of quantity demanded of good or service to get a change in it's price while nothing but price changes.
Price elasticity of demand is a measure of the change in the quantity demanded of a product in relation to its price change Price elasticity of demand = % change in quantity demand / % change in Price
Gaurav
Pls where can I found PRICE CONTROL on this app
top left corner
JUDE
A situation in an economy with one producer but many consumers
What is the theory of population according to Malthus?
Kabali
What is the Malthusian population theory?
Kabali
The Malthusian theory of population state that, where there are means of substinence like food, human beings have the tendency to procreate (ie.give birth) without restraint (ie. control).
George
he stated that population unchecked grows at a geometric progression ie 1,2,4,8,16 while the means food subsistence grows at arithmetic progression ie 1,2,3,4,5---- he declared that population has the tendency to outstrip the means of subsistence
Fung
What is money?
Kabali
money is any commodity that act as a medium of exchange
Fung
money is medium of exchange which is use in taking goods and giving some of it's worth or money value
what is a debit card and a credit card?
Milly
a debit card is a payment card used instead of cash while purchasing
a credit card is a payment card issued to users to enable cardholder to pay a merchant for goods and services
oky tanx
Milly
good
ABDUL
What is an inferior good.?
Kabali
In economics, an inferior good is a good whose demand decreases when consumer income rises (or demand rises when consumer income decreases),
Rams
what is monopoly
a market situation when there is only one seller of a product representing whole industry.
how
where one business is the dominant one in that market. It determines the market price as they are price makers. No entry, no competition.
karl
it is a market situation where is a single seller and many buyer hear the seller is the price maker the is no free entering and exit in this market
Fung
A situation in the economy where there is one producer and many consumers
Kabali
A market situation where there is one producer and many consumers.
Kabali
Balance of payments for 2018
what is monopoly and what is monopolaist
what is the affect of rise in value of dollar ?
Shabana
monopoly"a single firm or company owns all or nearly all of the market for a given type of product or service "monopoly is a price maker ...barrier of entry ,non availability of close substitute.
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing etc
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing
jay
monopoly is a market situation ...where there is a single seller and large number of buyers deals with commodities having no close substitutes......here the sellers are price makers... there is restrictions in the entry and exit of new firms in this market structure....
lovely
what is money?
Hilary
money is a medium of exchange.....through which...commodities are bought and sold
lovely
money is a medium/means of exchange that generally accepted by law
Prince
What is tranfer earnings
what is savings income?
Limitles
transfer earning is the minimum income that a factor is willing to accept in an occupation,it is also call the supply price of a factor
Fung
what is envelope curve
Dharam
what is depreciation
Fung
depreciation means decrease in value of a assets due to normal wear or year ,means decrease in value of assets like a machine due to its daily use
ru
Refers to wear and tear of capital machinery
apule
what is meant by currency depreciation?
Shabana
an envelope curve is also call an umbrella curve it is any curve that is enclosed by being tangen t to a series of other curves
Fung
fall in the value of currency vis-a-vis any other currency usually \$ due to marker forces is called currency depreciation. it is different from devaluation where in value of currency is deliberately reduced to improve BoT
depreciation in its broad sense means loss in the value of fixed capital say a tractor due to i) normal wear and tear ii) normal rate of accidental damage iii) expected absolescence to meet this, Depereciation Reserve Fund is created it is calculated by firms on the basis of their experience.
what is green revolution ?discuss the achievement of green revolution in India
green revolution is the third revolution of agricultural refers to a set of research and development of technology transfer initiative occuring between 1930s and the late 1960s that increased agricultural is called green revolution
Javid
the green revolution happened because to improve the agricultural sector towards adopting mordern methods and improvement of agricultural equipments
green revolution means new innovation for high yielding varieties seeds towards economic development in agriculture sector. started in 1966, it's achievement increase per productive of all crops ie rice, wheat,maiz,etc...mainly 131 million food grain in 1978-79 produced in india
Rams
Punjab and haryana was the first 2 states which have been successfully adopted hyv's and due to this adoption these two states find more successfull in india and it contributed though our national income and also to GDP growth this helps in development of our nation.
what calculation for demand and supply
what is nationalisation
it is a process of converting private assets into public assets by undertaking the control of government or state authority
ru
yes
Emmanuel
so true
Violet
what are some the things that may lead to nationalisation
Fung
Over exploring of customers by the private individuals Also to make the nationalised organisation social reliable and accessible by all
Richard
feeling of one's is called nationalisation. unity among them self .
anything which is widely acceptable as a medium of exchange
money ,currency
ru
Hello plz,what is the full mean of tertiary?
tertiary also called philoshper
Waseem
tertiary means third..for example primary sector ,secondary and tertiary sector... means three number..
ru
ru 9ice tnk
al
ru
tnz
al
what is money
Tettey
what is a bank
Walters
a financial institution which holds money for its clients ,which collect deposit and lend money at interest and trades generally in money...
Shabana
what is bankers draft ?kindly explain with example .
Shabana
money "anything which is widely acceptable as a medium of exchange"
Shabana
yes u ryt #shabana
Dar
difference between cost and price
Dar
Shallow definition
cost"the value of input that is the amount of money which is used to produce a good or service . price"an amount of money which has to b paid to buy something.
Shabana
Tertiary is an adjective(pre position) for stages or levels and refers to "top, final, full term ." ; Advanced.
Anderson
bank draft is a type of cheque which a person buy for to pay someone who is not willing to accept a personal cheque .
ru
tertiary sector is an providing any kind of services.
primary sector is 'agriculture', secondary sector is ' industrial sector ,and the tertiary sector is ,' service sector' ,
Dharam
subana are you understand now the meaning of bank draft?
ru
Tammanna
tertiary is a sector which provides all kinds of services.
no I didn't understand bank draft clearly
Shabana
elaborate it with example kindly
Shabana
A bank draft is a type of money order often used for large purchases. A bank draft offers guaranteed funding, as the institution issuing it has already collected money to cover its value, while a check draws funds from an individual's account. unless it has funds in it transaction is impossible
It provides all kinds of services like transporting,e banking.
Shabana
thanks
Honey
Any item considered to be of third order
Anthony
what is occupational structure
occupational structure refers to the distribution of occupation on the basis of educational ,socoial ,income level in a society or economy
ru
no that is not a exact meaning
than what is exact meaning
Dharam
It refers to also the what is the average income of the person
what is deficit
deficit = expenses > revenue
Waseem
yeah expenses over revenue results in deficit
Paulina
insufficiency
Anderson
What is What is Equilibrium
from business point of view it is that point where business revanu are equal to its expenses.
ru
in economy where demand is equal to supply is called equalibrium
ru
Equilibrium in economics is where quantity demanded is equal to quantity supplied
Collins
what are the objectives of devaluation
Oyedun