Microeconomic theory- Budget Constraints (chapter 2) Flashcards

A consumption bundle

the ratio of 2 commodities found on the budget set, can also be found on the budget constraint (but not necessarily)

Commodity

A good or service

Disposable Income

the amount of income that can be spent on commodities

Budget Constraint

When the expenditure required to purchase a specific bundle is no more than the amount of money that can be spent- that bundle is part of the budget constraint. Bundles that are just affordable with total expenditure form the budget constraint.

Total expenditure

The sum of expenditures on each commodity

Composite Good

What does it mean that the total value in the rate of consumption should be zero?

Total value should be zero when making changes to the budget constraint in that the ratio of goods should still be just affordable despite the changes in prices or income, etc.