1.2 — Budget Constraint — Appendix
Budget Constraint for Goods
While we can derive a lot of useful propositions and testable claims using a simple model with just 2 goods, obviously there are many orders of magnitude more goods in an economy. Economics at the graduate and professional level begins with abstract models of
Let
For
Which we can simplify, using summation notation, as:
To get the limit of this set, the budget constraint, make it an equality:
As usual, this simply says that one’s total expenditures (on all goods) on the left-hand side, must be equal to one’s income on the right-hand side.