10 terms

Budget Constraint

budget constraint
customer's affordable consumption bundles (total expenditure) don't cost any more than m
p1x1 + p2x2 ≤ m
budget set
all bundles of consumption that the consumer can afford
budget constraint line + area below
composite good
stands for everything a consumer might want to consume other than x1
measured in $
equation is the same as budget constraint where p2=1
budget line
set of bundles that cost exactly m; just exhaust the consumer's income
significance of the slope of the budget line?
rate at which the market is willing to substitute x1 for x2
opportunity cost
giving up the opportunity to consume good 2 is the cost of increasing good 1 consumption; measured by the slope of the budget line
numeraire price
price set to one
the price relative to which we are measuring the other price and the income
when consumption expenditure is lower than income/budget
Classical Economists
Adam Smith, David Ricardo, Karl Marx
focused on forces allowing economic systems to move/grow
matters concerning distribution of resources in economy
Modern Economists
Bentham, Edgeworth, Poreto, Marshall
focusing more on allocation of scarce resources
consumer using limited budget to manage consumption