Budget Constraints revisited x2 p1X1+p2X2=p1o1+p202 Budget set {(x1,x2)P1x1+P2X2sP11+p202, x1≥0,X2≥0
Budget Constraints Revisited x2 1 x1 2 p1 x1 + p2 x2 = p11 + p22 Budget set ( , ) , , x x p x p x p p x x 1 2 1 1 2 2 1 1 2 2 1 0 2 0 + +
Budget Constraints revisited x2 p1X1+p2X2=p1o1+p202 Budget set p1x1+p2x2=p1a1+p202
Budget Constraints Revisited x2 1 x1 2 p1 x1 + p2 x2 = p11 + p22 p1 x1 p2 x2 p1 1 p2 2 ' ' ' ' + = + Budget set
Budget Constraints revisited The endowment point is always on x2 the budget constraint p1X1+p2X2=p1o1+p202 So price changes pivot the constraint about the endowment point p1x1+p2X2=p101+p202
Budget Constraints Revisited x2 1 x1 2 p1 x1 + p2 x2 = p11 + p22 The endowment point is always on the budget constraint. p1 x1 p2 x2 p1 1 p2 2 ' ' ' ' + = + So price changes pivot the constraint about the endowment point
Budget Constraints revisited The constraint p1X1+p2x2=p1o1+p202 s p1(x1-01)+p2(X2-02)=0 That is the sum of the values of a consumer's net demands is zero
Budget Constraints Revisited The constraint is That is, the sum of the values of a consumer’s net demands is zero. p1 (x1 −1 ) + p2 (x2 −2 ) = 0. p1 x1 + p2 x2 = p11 + p22
Net demands x2 p1(x1-1)+p2(X2-2)=0 At prices(p,, p2) the consumer sells units of good 1 to acquire more units of good 2
Net Demands x2 1 x1 2 p1 (x1 −1 ) + p2 (x2 −2 ) = 0 x2 * x1 * At prices (p1 ,p2 ) the consumer sells units of good 1 to acquire more units of good 2