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The Budget Constraint

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Budget Constraints in General
The Budget Constraint
In general, budget constraints can be written in the form above unless they have special conditions such as volume discounts, rebates, etc. The above formulation states that the price of the good on the x-axis times the quantity of the good on the x-axis plus the price of the good on the y-axis times the quantity of the good on the y-axis has to equal income. It also states that the slope of the budget constraint is the negative of the price of the good on the x-axis divided by the price of the good on the y-axis. (This is a little weird since slope is usually defined as change in y divided by change in x, so be sure not to get it backwards!)

Intuitively, the slope of the budget constraint represents how many of the good on the y-axis the consumer must give up in order to be able to afford one more of the good on the x-axis.

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