Chapter 2
Budget Constraint
The Budget Constraint
 m=p1*x1+p2*x2
 where I=income, assumed to be given


p1=price of x1, assumed to be given.
p2=price of x2, assumed to be given.
02.01
Key elements that affect the
budget line
 m (shifting the line up or down
without affecting its slope)
 Either p1 or p2 affects its slope and
position
02.02
02.03
02.04
02.05
02.06
x2
Budget line:
Buy one and get the second one
at half price
1
2
3
4
x1
x2
Budget line:
Buy one get one
free
1
2
3
4
x1
W. W. Norton & Company
Independent and Employee-Owned
This concludes the Norton Media Library
Slide Set for Chapter 2
Intermediate
Microeconomics 6th Edition
by
Hal R. Varian