Question

definition of budget constraint model

Answer 1

Answer:

Budget Constraint model:

Budget Constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.

Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices.

Both concepts have a ready graphical representation in the two-good case.

GRAPH:

EXAMPLE

Budget constraint, where and

In other words:

budget constraint suggests that a particular consumption bundle is available or affordable to a consumer if the total money spent on both the goods is less than or equal to the total available money income.