Explanation The budget constraint is the constraint which is due to the budget of the individual. The human wants and needs are unlimited and when the budget of the individual is not unlimited, it will lead to the constraint of needs and this constraint raised due to the limited budget is known as the budget constraint of the individual. Thus, a budget constraint will represent all the possible combinations of two commodities that an individual can consume at the given market prices and with all his income in hand. Here, the income of the person is given as $3,000, the price of per glass wine is $3 and the price of cheese is $6. Thus, when the consumer spends her entire income on the purchase of cheese, the quantity that she can receive can be calculated by dividing the income with per pound price as follows: Quantity Cheese received = Income Per pound price = 3 , 000 6 = 500 Thus, when she spends all her income on cheese, she can buy 500 pounds of cheese. When she spends all her income on the wine, the quantity can be calculated by replacing the price of cheese with that of wine as follows: Quantity Wine received = Income Per glass price = 3 , 000 3 = 1 , 000 Thus, when she spends all her income on wine, she can receive 1,000 glasses of wine

The budget constraint of the consumer.

Principles of Economics (MindTap Course List)

8th Edition

ISBN: 9781305585126

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Chapter 21, Problem 1QR

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The budget constraint of the consumer.

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Chapter 21, Problem 6CQQ

Chapter 21, Problem 2QR

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