⇒ Similar to the Possibility Frontier (PPF), but like a “consumption possibility frontier”.


You will often plot all other consumed goods into one combined good, as the **“.

—Equation of the budget constraint

  • y-intercept: → if you buy only
  • x-intercept: → if you buy only
  • gradient:
    • → Opportunity cost of one unit of in terms of .
    • negative, since for additional consumption of you lose your ability to consume .

Change in Budget Lines

  • Exogenous change in income
  • Chnage in price or Graph
    • When price of good decreases (i.e. decreases) intercept stays the same, gradient increases. Vice versa when changes.
    • ⇒ Real income changes
  • Endowments
    • Endowments are a particular basket of goods you get for free; it’s a single point in the graph—in this case, (5 pants, 10 shirts) is the endowment.
  • Progressive Taxes
  • Inter-temporal Budgets