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.

Did you feel like any of the videos above were confusing, or could use more detail? If you're a student at Iowa State University, send me a quick note at mclancy@iastate.edu, referencing the video number and your issue, if applicable.