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A line connecting all points of tangency between the indifference curve and the budget constraint is called the expansion path. [10] All two dimensional budget constraints are generalized into the equation: + = Where: = money income allocated to consumption (after saving and borrowing)
Suppose the consumer's consumption set, or the enumeration of all possible consumption bundles that could be selected if there were a budget constraint. The consumption set = R + n . {\displaystyle \mathbb {R} _{+}^{n}\ .} (a set of positive real numbers, the consumer cannot preference negative amount of commodities).
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.It analyzes how consumers maximize the desirability of their consumption (as measured by their preferences subject to limitations on their expenditures), by maximizing utility subject to a consumer budget constraint. [1]
In these situations, the intertemporal budget constraint is effectively an equality constraint. In an intertemporal consumption model, the sum of utilities from expenditures made at various times in the future, these utilities discounted back to the present at the consumer's rate of time preference, would be maximized with respect to the ...
The income–consumption curve is the set of tangency points of indifference curves with the various budget constraint lines, with prices held constant, as income increases shifting the budget constraint out.
The Ricardian equivalence proposition (also known as the Ricardo–de Viti–Barro equivalence theorem [1]) is an economic hypothesis holding that consumers are forward-looking and so internalize the government's budget constraint when making their consumption decisions.
Individuals' consumptions are constrained by their budget allowance. The graph of budget line is a linear, downward-sloping line between X and Y axes. All the bundles of consumption under the budget line allow individuals to consume without using the whole budget as the total budget is greater than the total cost of bundles (Figure 2).
The budget set is bounded above by a -dimensional budget hyperplane characterized by the equation =, which in the two-good case corresponds to the budget line. Graphically, the budget set is the subset of R + k {\displaystyle \mathbb {R} _{+}^{k}} that contains all the consumption bundles that lie on or below the budget hyperplane.