If a consumer's income is $300, the price of good X is $3, and the price of good Y is $6, then...
Question:
If a consumer's income is $300, the price of good X is $3, and the price of good Y is $6, then what is the algebraic expression for the consumer's budget constraint?
Utility Maximization
The microeconomic theory of utility maximization states how a consumer chooses his consumption bundle such that his highest satisfaction level is maximized. However, while making such a choice, an individual is restricted by his money income or budget constraint.
Answer and Explanation: 1
The budget constraint (BC) shows the different combinations of affordable commodities by the consumer, given his money income and the market prices of the goods.
The general expression for BC is,
{eq}{\rm\text{M = }}{{\rm\text{P}}_x} \times x + {{\rm\text{P}}_y} \times y {/eq}
where, M = consumer income = $300 (given)
Px = price of x = $3
Py = price of y = $6
So, the expression for budget constraint is,
{eq}300 = 3x + 6y {/eq}
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Utility Maximization: Budget Constraints & Consumer Choice
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