Budget Constraint Example
Draw a budget constraint for a consumer who has income $Y$ and consumes only food ($F$) with price $p_f$ or shelter ($S$) with price $p_s$. Illustrate how the budget constraint changes if the price of food rises.
Try this on your own before watching the video below for a walkthrough.
Utility Max subject to a budget constraint Example
Suppose a consumer with income $Y=60$ is deciding how much food ($F$) and shelter ($S$) to buy. The price of food is 2 and the price of shelter is 1. The consumer has a marginal rate of substitution $MRS=\frac {\partial F} {\partial S} = - \frac {F}{S}$. How much food and shelter should they buy to maximize their utility subject to their budget constraint?
Try this on your own before watching the video for a walk through.
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