What is meant by consumers budget constraint
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The income of a consumer is 'M'. The price of goods are P1 ,P2. Suppose that a consumer purchases x1 amount of good 1 and x2 amount of good 2. Then his expenditure on good 1 is P1x1 and on good 2 is P2x2. So the total expenditure on both the goods is
The consumer can purchase any bundle which should not exceed in his income.
- If M is the income of the consumer P1,P2 re prices of good 1 and good 2 respectively. Then the inequality
is known as budget constraint.
If M is the consumers income P1 ,P2 are prices of goods then all the consumption bundles within the budget constraint .
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